Private equity has taken a PR battering this year but now plays a vital role in the UK hospitality sector, argues Mark Sheehan, managing director of property agent Coffer Corporate Leisure
Widely portrayed as asset strippers, private equity firms are also criticised for raising a huge amount of debt against the businesses they buy. While it can be argued that both accusations have an element of truth, the companies have provided huge focus and massive investment across the hospitality sector.
You only need to look at deals that have taken place in the past year to understand how important private equity is in the industry.
The restaurant market in particular has been transformed since Cinven acquired PizzaExpress owner Gondola Holdings in November 2006.
Blackstone acquired Tragus shortly afterwards and has subsequently added Ma Potter's and Strada. Add Robbie Tchenguiz's acquisition of La Tasca and Luke Johnson's activity and the quoted sector appears quiet by comparison. There are now very few quoted restaurant companies, and those out there are having little impact in the market for corporate deals.
Private equity saw the restaurant market as seriously undervalued. The plethora of corporate deals over the past year - most of which involved private equity - have demonstrated serious re-pricing.
There is also significant private equity in the pub and bar sector. Alchemy owns Inventive Leisure and Tattershall Castle Group GI Partners has Orchid and Electra Partners, Novus Leisure (Urbium).
Other property players have become private equity investors, including R20 with Laurel Pub Company, and the Landesberg/Rosenberg families, who have investments in both pubs and hotels. Private equity has been very important in providing purchasers for listed companies selling groups of pubs.
The credit squeeze over the summer is probably going to have an effect on what private equity players will pay for businesses and will see an adjustment in the multiples paid for deals. Buyers will price in a slight readjustment of property values in those deals involving freehold assets.
But private equity firms have already raised billions of pounds that are waiting to be invested.
They won't earn fees unless they invest, and they're not going to go away, no matter what union leaders or the media might say.
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