Appetite for investment


With the economy feeling more buoyant, Jon Gill and Andrew Webber advise on the options of trade sales or private equity buy-outs, and offer some top tips for maximising the potential of these transactions


C


ôte Restaurants and the Alchemist are recent examples of an increasing appe- tite by private equity to invest in the


restaurant sector. Whether as a direct invest- ment, buy-out by an investor or a trade sale to one of the larger groups, the drivers for this are clear. Consumers appear confident, the short-term economic outlook is positive and investors are keen to put their money to work. The primary targets are entrepreneurs with an established group of restaurants; typically 20 or more. For those in this category, it is possible that investors or potential acquirers will get in touch, keen to start a dialogue. These conver- sations need not, of course, lead to an immedi- ate transaction. However, they are nearly always worth exploring because they can open the door to joint ventures and other collaborations. Before you start a dialogue, it is valuable to


have a conversation with the current sharehold- ers and executive team to clarify objectives and identify areas of alignment or perhaps misalign- ment that a transaction may be able to solve. Transactions come in all types of flavours, from a “clean break” for shareholders with value being fully realised at completion, right through to a “buy-out” where the majority, if not all, of the investment is made to grow the business. In the latter scenario, existing share- holders maintain ownership, albeit alongside


12 | Insight Report


a third-party investor. The opportunities are certainly out there.


But it will be the clarity of purpose at the start that will help determine whether a change in the existing ownership structure of the busi- ness is really needed. This clarity will also help to ensure that any transaction is designed to deliver what the business needs.


Top tips Think about the drivers for a transaction Does the founder feel that running a larger group, with all the management responsibil- ity and administration that it involves, is no longer providing fulfilment? Is there a per- sonal desire to “de-risk” to some extent and achieve a degree of financial security, whilst continuing to be heavily involved in the busi- ness and rewarded for growing it further?


Consider the desire for future growth What further potential does the business have; for example, geographic expansion or brand extension? Can this be exploited with current resources in terms of finance, people and expertise? What is the management’s view on building the business further?


Seek the right professional advice This is a specialist area in which entrepre-


neurs will be dealing with parties for whom the structuring and negotiation of transac- tions is their core competency. Entrepreneurs therefore need to surround themselves with legal and financial advisers who know the sector, know the counterparties and can pro- vide the experience, resource and context to achieve the right result. This can often result in a “change point” for the business’ existing advisers, who may have been well suited to “business as usual” advice, but may not be the right fit for such a critical and ultimately time- consuming project.


Get the business fit for third-party scrutiny Deal with any disputes quickly and perma- nently, ensure the brand is properly protected, ensure that any real estate issues are managed professionally, and invest in the infrastructure to demonstrate the business has the capacity for further growth. These pre-emptive steps will ensure that buyers or investors focus on the future potential they are buying, rather than being distracted by legacy issues that could cause problems in the future.


Contacts Jon Gill and Andrew Webber, corporate partners, TLT, jon.gill@TLTsolicitors.com and andrew.webber@TLTsolicitors.com


www.thecaterer.com


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