The recent sale of the 3i and Risk Capital Partners backed restaurant chain Giraffe to Tesco for £48.6m highlights the growing attraction of the leisure and dining out sector for venture capital and private equity investment. Tesco obviously saw the acquisition as a way to attract more lucrative growth for its supermarkets, as well as perhaps utilizing under-used retail space. However, Tesco was a surprising acquiror of a chain of restaurants and it provides an interesting additional exit route for VCs/PEs holding such investments. Presumably, other retail operators will be thinking carefully about ways to attract customers to their stores or to encourage them to spend a longer amount of time in their shopping experience.

Another chain of restaurants which is publically up for sale at the moment is the Cote chain, which has expanded very quickly and reflects the growing popularity of restaurants which offer simple cooking rather than the expensive and over complicated cooking found in formal restaurants,but still using very good quality ingredients. It is certainly true that the dining habits of the Great British public have changed dramatically over the last few years with far more people dining out on a casual basis than ever before. This change in dining habits appears to have survived the economic downturn, although inevitably there will be regional variations.

At Pitmans, we have recently acted on an early stage investment in a modern Japanese restaurant, acting for the VC institutional investor and a very experienced business angel, who has numerous interests in the leisure and dining out sector. This transaction demonstrates how the boundaries between the traditional stages of funding are being broken down,so that instead of an early stage company receiving funding from a business angel and then, at a later stage in its growth, applying for institutional venture capital funding, it made far more sense to attract investment from both the business angel and the venture capital institution at the same time. The venture capital institution obviously received huge comfort from the fact that a very experienced business angel was investing his own money and the business angel appreciated the formality and corporate governance which the financial institution brought to the investment. We know that the UK Business Angels Association is keen for such investments to be made and for VCs/PEs to tap the huge resources of money which are around in the business angel community.

The restaurants and indeed the food and drinks sector generally require many different aspects of legal advice ranging from:

  • work on the investment agreement, articles of association and corporate structuring
  • property advice
  • intellectual property advice to protect the brands vital for these sorts of businesses
  • advice on food safety legislation
  • employment advice including temporary workers’ regulations
  • management agreements
  • licensing issues
  • card fraud and e-commerce abuse

to name but a few.

It is comforting to know that even in these difficult economic times, some sectors appear to have weathered the storm better than others and are becoming attractive to acquirors from different markets.

This article was originally published by BVCA.