A ‘Hot’ UK Casual Dining Market per Investment Activity – Choosing the Right Partner is Key

The news about Boparan Restaurant Holdings (BRH) purchasing the Cinnamon Collection only days after we learned about Equistone Partners Europe Limited acquiring a majority stake in GAUCHO is an indication that the UK restaurant scene continues to be a ‘hot’ one. Private equity firms, investment companies and family offices are keen to increase their exposure to the consumer sector and the ‘hunt’ for fresh, high-growth potential restaurant concepts continues. In fact, according to market intelligence firm Dealogic (reporting regularly on trends driving the investment banking community), more than 20 European restaurant groups were acquired by private equity firms since 2014. It is likely that every single one of those transactions has taken months to prepare and numerous parties were involved in conducting the proper financial and legal due diligence. But, once deals are ready to sign “How do restaurant operators and investors ensure to have chosen the right partner and enter into a fruitful business relationship?” A 2015 report by consultancy firm BDO sheds light on the key drivers behind the continued investment frenzy into the UK restaurant sector. It highlights the overall positive economic outlook and a strong rise in the UK Consumer Confidence Index that result in heightened consumer spending (strengthened by low inflation), which in turn bolsters demand for dining out – specifically within the ‘casual dining’ segment. As per the report, trading conditions for the restaurant and bars sector have [predictably] been favourable and the industry as a whole has enjoyed healthy growth rates – something investors are all too keen to hear. Consequently, we saw big transactions taking place such as the GBP £250million Ask Italian and Zizzi deal completed by Bridgepoint. We also witnessed the Casual Dining Group acquire Las Iguanas from Bowmark Capital (valued at GBP £85million) and La Tasca from Kaupthing (valued at GBP £25million). Yet, BDO also highlights that UK consumers are somewhat tired of well-established concepts and are looking for innovate ideas and novel places to lunch and dine. It therefore should come as no surprise that it is increasingly the smaller deals that are making headlines, such as Active Private Equity’s investment into Honest Burgers in 2015 (GBP £7million). It seems that for many, the upside is in identifying promising start-up companies or smaller brands with significant growth potential. But what does that mean for entrepreneurs who are looking to secure external funding in order to develop their new concepts? With so many investors fighting to get their foot into the door, how does one choose the right partner? And on the flipside, with so many different investment vehicles out there looking to provide their capital to fund and support promising, up-and-coming restaurateurs, how does one get picked as the ‘right’ partner? No doubt, investors are adding value by asking the right questions, challenging the assumptions of the senior management team, and providing guidance with regards to corporate structures, processes and procedures. There is a lot to be said for the equity that can be poured into a business by bringing investors on board. Money, which can be used to support growth and re-fresh the brand or concept, fund site acquisitions and secure leases in prime locations. However, when it comes to working with businesses where the entrepreneurs or founders are still very much part of the firm's DNA, investors will want to make sure that support provided is not only in the form of financial resources and business acumen; otherwise, they run the risk of alienating entrepreneurs and losing out on a potential deal to a more ‘engaged’ partner. Understanding and fostering of the corporate values, and ensuring that a rollout strategy protects the authenticity and integrity of a brand, is critical. And with in-depth insights into other industry sectors or companies, investors are also in a unique position to foster creativity and out-of-the-box thinking on the brand side. Therefore, when it comes to successfully securing the right partner, restaurant entrepreneurs would do well in playing close attention to the investor’s emotional intelligence and well-developed interpersonal and communication skills. The role of the investors and their teams should not purely be focused on providing expertise and direction. More often than not, the investor’s responsibility is to add value and support growth: This comes from engaging with the entrepreneurs, understanding the source of their passion for the business and their personal motivation. It is in those instances when 1+1 is much more than two. 1+1 = 4.