The hiatus on M&A activity in the UK leisure and hospitality market is finally showing signs of coming to an end. This event, as is often the case, appears to have been foreshadowed by the US market. 

 

In the US, deals have been getting done through 2023 – both private and public – and the US investor set is generally more bullish about the restaurant’s future. As one US analyst said in the summer: “The market is going to continue to provide windows and opportunities for quality companies. I don’t think any single deal or one data point is going to open the floodgates, but a lot of issuers are taking a much more constructive and proactive view towards the public market, whether that’s for later this year or 2024.” 

 

That said, one single “data point” that serves to illustrate the stronger sentiment was the initial public offering (IPO) of the Cava Group. The circa 235-strong business, which is seen as a Mediterranean version of Chipotle, went public in the US in June and currently has a market capitalisation (at the time of writing) of circa $4.3bn (£3.3bn). That equates to around $18m (£14m) per restaurant. 

 

Some more restaurant businesses are expected to follow this flight to the public markets, including Panera Bread and Fogo de Chao (more on that later), and it looks like the US market for IPOs is finally coming back to life after 18 months of relative inertia. There are some caveats: given its extraordinary fast growth and rollout, Cava is yet to make a profit, and some have pointed out that the group was priced to grow faster than the aforementioned Chipotle did in its first decade of trading. But the IPO has undoubtedly brought positive attention back to the restaurant industry for all types of investors.

 

Despite analyst predictions in the US that buyers would focus primarily on quick service restaurants (QSR) and distressed transactions for the first half of 2023, M&A activity was characterised by segment consolidation. It is a trend that we have seen to a degree in the UK – Azzurri Group acquiring Boojum being an example in the QSR/grab-and-go segment, while investment firm Breal Group has acquired a number of businesses out of administration, including Vinoteca and D&D. 

 

The summer saw what was, at that point, the largest deal of the year when Darden Restaurants, operator of the Olive Garden and LongHorn Steakhouse brands, completed its $715m (£585m) acquisition of the upscale Ruth’s Chris Steak House brand.

 

Still pending is Subway’s $10bn sale to Roark Capital, owner of the likes of Dunkin, Baskin-Robbins, Sonic, Arby’s and Buffalo Wild Wings. While some reports have said the purchase price could end up below the $10bn mark, this would be the largest restaurant sector sale since Inspire Brands – Roark’s platform company – bought Dunkin for more than $11bn in 2020. It’s been suggested that many potential suitors, including restaurant conglomerates, baulked at the $10bn price tag, leaving only private equity bidders to compete. 

Other reported bidders included TDR Capital and Sycamore Partners, highlighting that both specialist and generalist private equity players still had strong interest in the sector. This was underpinned in August, when private equity firm Bain Capital agreed to buy Fogo de Chão, in a deal that valued the Brazilian steakhouse chain, at about $1.1bn, including debt. The deal marked a win for private equity firm Rhone Capital, which took Fogo de Chão private for $560m in 2018. 

 

Through the summer, you could understand why leaders of sector companies over here may have been looking across at what is happening in the US, as investors here remained cautious about consumer-facing stocks, not least hospitality ones. That said, things dramatically changed when US private equity firm Apollo Capital Management, a previous investor in the UK’s casual dining sector, agreed to acquire listed Wagamama-owner The Restaurant Group (TRG), in a deal that valued shares in the business at circa £500m. It has put other leading listed businesses on alert, with Apollo agreeing to pay a circa nine-times multiple for TRG.

 

It is likely that this increased interest, and Apollo’s return to the UK restaurant market table, will serve as a catalyst for a wider pool of investment firms to re-assesses consumer-facing companies, including restaurants and pubs. And in doing so, provide some competitive tension among, hereto, the smaller cohort of would-be buyers. As has been the case over the past few years, there is a sense that forward-thinking investment firms, with a long-term view, could be (or should be) taking advantage and acquiring some of the best businesses in the sector that previously would be out of reach. 

 

An example of one such investment firm is McWin. The vehicle of food industry entrepreneurs Henry McGovern and Steven Winegar has, over the past two years, backed the likes of Gail’s, Vapiano and White Rabbit, and recently acquired a majority stake in Big Mamma Group, the European operator behind London restaurants Gloria, Ave Mario, Circolo Popolare and Jacuzzi. This deal saw the company valued at €270m. Big Mamma Group currently operates circa 23 restaurants across France, England, Germany and Spain.

 

To this point, it is fair to say that trade buyers have been in the box seat when it comes to the UK M&A market, with the likes of Azzurri Group, Big Table Group, TRG and Greene King being successful in adding to their brand platforms. If we are now coming to the stage where conditions are stabilising to a point where private equity – following what has happened in the US market – returns to the dealmaking trail, this can only be positive for the industry, and for patient investors who would like to head for the exit door. 

No-shows continue to blight the hospitality industry, with a doubling in the numbers of people not showing up for their reservations in pubs, bars and restaurants over the past year. There is now a horrendous 12% of consumers failing to honour their reservations, which is costing the sector an incredible £18bn a year in lost revenue, according to research from Zonal and CGA by NIQ. 

 

It looked like people had understood the damage their selfish actions were causing as the number of no-shows had dropped from 14% in September 2021 to 6% by September 2022 – helped by a campaign initiated by Zonal. Alas, this is not the case, and the disrespectful activity by a significant group of individuals has sadly returned and is especially damaging to restaurants, which suffer from 27% of the no-shows across the industry.

 

The late chef Nico Ladenis had a solution for the problem of no-shows at his restaurants – most notably Nico at Ninety in London’s Park Lane. On occasion, he would call the offending individuals at home after service at one or two o’clock in the morning and enquire if they still required their table, or if he could let the team go home now. 

 

This could be described as irresponsible behaviour – albeit dealing with irresponsible behaviour – which as my parents would often infuriatingly remind me when I was young, “two wrongs don’t make a right”. I suspect it would be difficult for such a renowned chef today to get away with such mischievous activity. Social media would no doubt have done for Ladenis.

 

Reading the many obituaries of the chef highlighted his cantankerous nature and commitment to delivering consistently high levels of food and service that ultimately earned him the honour of being the first chef of British citizenship to gain three Michelin stars. These undoubtedly came at a cost because he was a tough taskmaster – not only for his team, but also for his paying customers too.

 

He held a slightly contrarian opinion that the customer is not always right, which manifested itself in odd ways such as precluding diners from ordering things he deemed inappropriate – such as two gin and tonics as that would dull their taste buds – and requests for salt and pepper were a non-starter. He gave short shrift to diners he deemed to be too pompous and was not averse to showing such diners the door. Critics were also a target, and some of the big names of the day were especially unwelcome.

 

You might say these idiosyncratic actions bordered on the irresponsible, but they were undoubtedly effective as he enjoyed great loyalty from chefs and a band of customers that followed him from one restaurant to another as he scaled the culinary heights and hit the critical peak on Park Lane, with a third Michelin star awarded when he was a stately 60-years-old.

 

His uncompromising approach was reflected in the kitchen where his mantra of precision, restraint and consistency, consistency, consistency took its toll on those unable to stand the heat. But it also led to a whole generation of chefs grateful to have learnt the trade in his tough kitchens – including Marco Pierre-White, Jeff Galvin, Björn Frantzén, Jun Tanaka, Paul Flynn, Jason Atherton and Paul Gayler.

 

Regardless of the numerous accolades that came in for Ladenis following his death in September, I cannot help but feel that it would be well-nigh impossible for him to operate in the same way today. There would be accusations of unacceptable and irresponsible behaviour both in the kitchen and in the dining room. 

 

My one meal at Nico at Ninety involved taking my parents to lunch there in the early 1990s to celebrate a new job. The set meal was around £25 per head, and after the extremely enjoyable three courses, I can recall a waiter coming up to my father to ask whether he had enjoyed the experience. I was a tad surprised as I was the bill-payer on this occasion. My father revealed afterwards that he’d given the waiter £20 as we arrived and recommended that he did not let his glass of beer (Holsten Pils was his tipple at the time) ever run dry. Pretty irresponsible by today’s standards, many people would suggest, but highly effective.

Harald Samuelsson, joint managing director of Cote from 2008 to 2016, once told me that at the heart of any successful hospitality food and beverage business was its singular focus on food and service. Just that – food and service. It sounds very simple and blatantly obvious. I know from experience though that when your back is against the wall, it’s tricky to find that focus. I may be misquoting him (only slightly if my memory is correct) but the sentiment was very clear, and I think about his advice often.



There are so many considerations in terms of food. Is our food really outstanding for the price we ask our customer to pay? Is it consistent – every dish, every time? Is our team proud to serve each dish? What’s left on a plate when it comes back to the kitchen? How would customers improve each dish were they to be asked? What are our hero dishes that we want customers to remember?



Of course, “food” includes a myriad of elements including ingredient quality, sourcing, flavour profile, texture, colour, plate presentation, theatre and, of course, price and value for money. “We will offer great value for money” is often an intrinsic part of an operator’s food strategy – but it’s just such a catch-all, bland statement. “Offer poor value for money” never features in a strategic plan.



What constitutes menu “value for money” will differ wildly, of course, from brand to brand, but understanding what it means for a brand’s guests is critical. Perhaps, with the cost-of-living crisis, it’s more important now than ever. What’s obvious though is that it’s not just about price.



Over the last few weeks, I have had a bowl of beef bourguignon in Amersham House (a Cote restaurant) for £18; hot smoked salmon fishcake at the Swan in Denham for £8.75 (starter size but more than enough for a main meal); wild mushroom tortellini with miso butter at Mallow for £16; and Herring Hausfrauenart at the German Gymnasium for £14. At Ego, I had an Andalucian pork fillet wrapped in serrano for £19.95.



In Drake & Morgan in King’s Cross for breakfast one morning, I asked for a plate of smoked salmon, avocado and tomatoes, which is not on the menu, but which the staff didn’t hesitate to produce – no idea how much it cost to be honest. I had a bowl of wild mushroom soup at the Ivy for £9.45; conference pear, dolcelatte and beetroot salad for £9.25 at Browns; and burrata, red pepper tapenade and mixed seed dukkah for £8.95 at The Pilgrim in North Marson, Bucks, for £8.95.



All of these dishes, with the exception perhaps of only one, were excellent and really great value for money at about £8-£10 for a starter, usually eaten as a main course, and £14-£18 for a main course itself. The stand-out dishes were the soup at The Ivy – the perfect combination of service panache and wonderful flavours – and the tortellini at Mallow. The flavours were just exceptional and the team there was perfect.



With two starters and a non-alcoholic drink, spend per head is usually around £25. Replace a starter with a main course and add in alcohol, then it can creep up to £40 or sometimes £50 a head, and £100 for two. That price needs a very conscious decision to eat out rather than cook at home. It’s not a spur of the moment decision any more when neither of us can be bothered to cook. Value for money – my money – becomes quite important in that instance. The brands that understand what “value for money” means for me wins my custom.



One brand that stands out for me in absolutely understanding its own guests’ value for money requirements is Toby. Here, soup of the day is £2.99, stuffed Yorkshire pudding is £2.99, steamed sea bass is £8.99 and a roast carvery is £7.79 during the week. Spend per head on that basis is probably around £12. It must be cheaper to eat here than eat at home. For food, service and value for money, Toby seems to have it right.