Jonathan joined BGF before its launch in early 2011 to help establish the BGF investment process and strategy. He is now focused on the origination, appraisal and execution of new investment opportunities. He also represents BGF on the board of a number of portfolio companies. Jonathan has 10 years’ investment experience, having previously worked for Bank of Scotland and subsequently Lloyds Banking Group in the Joint Ventures team, where he undertook several asset-backed investments. Prior to that he worked in the equity management and corporate banking divisions within the bank.
Jonathan holds an MA in Economics and Finance from Leeds University Business School. He lives with his wife and two children in North London. As well as following his home town team United, he enjoys running, having occasionally completed the London marathon and triathlon.
“Logic will get you from A to B. Imagination will take you everywhere.”
Alistair joined BGF in July 2011 and is based in London. His main role is to identify and successfully execute investments. He also sits on the board of a number of our portfolio companies.
Alistair has 14 years’ experience in small company investing and has led investments into over 25 businesses. His investment experience was gained initially at Close Brothers and then at Octopus Ventures, where he was involved in a large number of growth capital and management buyout transactions, across multiple sectors and throughout the UK. In the majority of cases, Alistair also joined the board of those companies. Alistair began his career at Price Waterhouse with direct entry into the Business Recovery Services team.
Alistair has an MA in Modern History from Oxford University and is a qualified Chartered Accountant. He is married with three children and lives near Guildford. When he is not running around after his children, Alistair likes to play (or increasingly now settle for watching) cricket.
“What excites me most about my role at BGF is the privilege of interacting with a wide variety of entrepreneurs, and I try to bring the same passion they display into my own efforts to support a portfolio company’s growth.”
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- Oliver Sweeney (Board Director)
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- Cennox (Board Director)
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INVESTING IN THE RESTAURANT SECTOR
This article first appeared in Caterer and Hotelkeeper magazine May 2013
By Andy Gregory
George Osborne’s Budget may have been full of gloomy economic updates but it also included some patches of light for the leisure and hospitality sector.
In an industry where good news has been in short supply since the crisis, these concessions will add to the perception that light at the end of the tunnel is just about coming into view – and encourage more businesses to invest accordingly.
On the demand side, while serious headwinds remain, the Chancellor’s decision to freeze the fuel escalator and further extend income tax personal allowances will boost consumers’ spending power (and the tax cut on beer was a subtle nod from Mr Osborne on how to use that boost that many in the sector will appreciate).
Moreover, the Treasury also offered supply-side reforms that will benefit employers in the industry as they seek to grow their businesses. The Employment Allowance, which comes into effect next April, will subsidise employers’ national insurance contributions by up to £2,000 a year. The Chancellor says up to 2.5 million employers will qualify for the new allowance, while 450,000 of the UK’s smallest businesses will pay no employer national insurance contributions at all.
The measure is specifically aimed at boosting job creation – it effectively means a business will be able to hire one new member of staff on an annual salary of £22,500, or four employees on the minimum wage, without incurring any additional national insurance contributions.
For labour-intensive businesses in the leisure and hospitality sector, that’s a welcome reform – particularly for those with ambitions to expand. It should encourage more companies to open new sites and hire new staff.
Nevertheless, a programme of openings – particularly if it is aggressive and ambitious – requires significant investment. And while the climate for openings may feel more benign, the problem of how to fund site roll-outs hasn’t gone away.
It’s a common dilemma for fast-growing leisure and hospitality businesses.
Though it may be possible to finance some additional openings from cashflows at existing outlets, rolling out new sites in this way is likely to be a slow process. And that delay might mean missing out on prime sites, or seeing competitors steal a march.
While bank debt might be a solution – assuming this form of finance is even available – it is likely to come with strict performance-related covenants. Businesses often encounter unexpected difficulties when developing new sites and such covenants can leave them vulnerable as they try to cope with these short-term setbacks.
Business Growth Fund may be able to help. The long-term equity finance we provide is well-suited to businesses with ambitious and realistic plans to grow rapidly. It can deliver the funding that will enable companies to realise those plans with a cushion of protection to see them through hiccups along the way.
We will invest between £2m to £10m in businesses with an annual turnover of between £5m and £100m. We only take minority stakes in companies; we are building not buying businesses – and doing so for the long-term.
The leisure and hospitality businesses in which BGF has already taken stakes are proving that despite the difficult economic climate, it is possible to prosper and grow with the right business plan – and the support necessary to underpin that growth.
BGF’s investments in the sector began in March 2012 with a £3.25m stake in Barburitto, a Mexican restaurant chain with six outlets in the North of England.
The investment has kick-started a rollout programme, with Barburrito planning to triple the number of its restaurants it operates within four years. The business began that programme in March 2013 with the launch of its first London restaurant, in London’s Paddington Station. It expects to open a further three outlets over the next few months.
Similar investments include Boost Juice which was launched in the UK by Richard O’Sullivan, whose track record in the sector includes the development of Millie’s Cookies, which he built to 100 stores before selling up for £24m. O’Sullivan launched 10 Boost bars before approaching BGF for help with dramatically accelerating the rollout of the chain. The fund’s £2.5m investment in the company, made at the end of last year, should enable the company to open 10 new sites in each of the next three years.
Then there’s Peyton & Byrne, the family business of celebrity chef Oliver Peyton, where a £6.25m investment made by BGF last December has given the company the firepower that it needs to expand on several fronts. BGF also introduced Peyton & Byrne to Mike Johnson, the former chief executive of Whitbread’s restaurant chain, and he is now helping the company roll out more of its bakeries and restaurants.
At Wear Inns, meanwhile, an £8m investment by BGF in May 2012, together with additional funds from an existing investor, has already enabled the pub chain to add 11 new pubs to the 15-strong portfolio it had previously built up. Wear’s strategy is to buy up underperforming pubs with the aim of reversing their fortunes – it’s an intelligent business plan, but one that may require significant investment.
Finally, there’s Camino, a chain of tapas bars in London run by an experienced management team that have previously built a diverse range of successful bar and restaurant businesses. BGF put £3m into the business in December 2012 and Camino now plans to step up its site rollout programme – and to double the number of people it employs.
What do these businesses have in common, other than operating in different parts of the same sector? Each company has ambitious plans for the future and a realistic roadmap for getting there. BGF’s money will help them fulfil their potential.
FUNDING A SITE ROLL-OUT
“Roll-out programmes often don’t work out as expected, so you need balance sheet security in order to get past any nasty surprises…equity puts a slug of long-term capital into the business so you can take your time preparing to make the leap and then really go for it.”
Four years ago, Richard O’Sullivan, the managing director of Boost Juice Bars, realised he had a problem. His ten-strong chain of juice and smoothie bars was trading strongly despite the recession, as it capitalised on booming consumer demand for healthier products. And having previously built up one retail business, Millie’s Cookies, to 100 stores before selling up for £24m, he recognised he had another potential smash hit. The question was how to fulfil that potential.
“We felt the opportunity was rising all the time but our ability to fund that was definitely challenging,” O’Sullivan explains. “With four years of trading behind us, we knew our original business plan was going to be delivered and we had the ambition to do much more – it just wasn’t going to be possible to realise it with our finances as they were.”
O’Sullivan considered the best way forward culminating in BGF investing £2.5m in the business in December 2012. The money has enabled O’Sullivan to begin turning ambition into reality.
“We’ve been able to turn on the hosepipe, not least because the money has given us real credibility when we talk to landlords about securing leases” he says.
Andy Gregory, a regional director of BGF, led the engagement with Boost and has taken a seat on the company’s board. The dilemma facing O’Sullivan is, he says, common amongst fast-growing retailers and leisure businesses, which often don’t generate sufficient cashflow to realise their potential. Bank debt may be a solution, where it is available, but, Gregory argues, it’s not well-suited to businesses looking to fund an aggressive roll-out of new sites.
“Equity is a better source of growth capital for businesses in this position because it provides a more stable platform,” he says. “Roll-out programmes often don’t work out as expected, so you need balance sheet security in order to get past any nasty surprises. Debt may require you to accept covenants that mean you could lose the business if the roll-out programme goes wrong, but equity puts a slug of long-term capital into the business so you can take your time preparing to make the leap and then really go for it.”
Oliver Peyton, the founder of Peyton and Byrne, recognises this analysis. With three strands to his company – a chain of restaurants, a business offering catering services to iconic venues and a growing string of bakery and café outlets – he too found himself struggling to capitalise on the potential for growth.
“We felt we were at a turning point where we had to decide whether to really go for it,” Peyton says. “When you reach a certain scale, your growth needs to become more exponential, and we felt the economic environment was going to throw up the opportunities to achieve that – it felt like our moment, but we knew what we wanted to do required much more capital than we had available.”
Peyton had several concerns in mind as he began looking for new sources of finance last year. He recognised the company would not be able to secure sufficient funding from the banks to realise his vision for it, but having founded Peyton and Byrne with his sister, he wanted to continue trading as a family business rather than giving up control. He was also aware the company would need more than just financial support as it scaled up.
“We had to consider whether we had the ambition and expertise to turn our family business into something that would be much bigger,” Peyton says. “Whilst we talked to a range of private equity firms – that didn’t work for us. We chose BGF because they were only interested in a minority stake and they really seemed to understand our growth plan.”
In December 2012, BGF invested £6.25m in Peyton and Byrne with the cash earmarked for an acceleration of the company’s plans to roll out more of its bakery stores and to launch new restaurants. Crucially, in addition to the cash, BGF introduced the company to Mike Johnson, a former chief executive of Whitbread’s restaurant division, who joined Peyton and Byrne as a non-executive chairman to help provide that new expertise.
This support, financial and non-financial, has given the company breathing space to focus on the next stage of its development.
“Instead of worrying about cashflow, we now worry about growth, which is a much happier problem to have,” Peyton says. “In the past we’ve definitely missed out on opportunities because we didn’t have the funding to cope with more than one project at a time.”
The story at Wear Inns, one of the first examples of a business where BGF investment has fuelled a site roll-out programme, is similar. Like Oliver Peyton, John Weir, the chief executive of Wear Inns, was confronted by more opportunities than his business, which buys up underperforming pubs with the aim of turning their fortunes around, could cope with.
Weir was also concerned the company would miss out if he didn’t find a way to move more quickly. “It would have been possible for us to grow organically, but we might never have achieved our full potential because there’s a real window of opportunity in our business just now,” he says. “We’ve been able to buy at a time when pub prices are low, but that will no longer be true in 15 months’ time.”
The £8m investment BGF made in Wear Inns in May 2012, alongside additional funds from existing investor NVM, immediately enabled the business to add 11 new pubs to its 15-strong portfolio. “We think we have opportunities to pick up another ten while still being very selective,” says Weir. “But BGF has given us more than just the cash – they’re a supportive minority investor keen to learn more about our business but without breathing down our necks.”
Andy Gregory says it is the long-term and flexible approach BGF is able to take that is proving so compelling. Too often institutional investors focus on their own exit plans, which may not sit comfortably with the site roll-out programmes envisaged by the business seeking funding.
“Equity should be long-term flexible capital that enables the business to take strategic decisions without having to “just think about short-term cashflow” Gregory argues. “It gives the business the confidence to go out and execute their growth plans aggressively; plus you get an investor whose interests are aligned with the company – in our case over ten years or more if needs be.”
To secure that commitment, however, businesses must prove their mettle. Above all, says Gregory, this is an investment in people.
“Quality of management is incredibly high on my list of priorities when I’m considering whether to invest in a company,” he says. “If we’re going to have a minority stake for that sort of period, it’s crucial we’re confident we can develop a partnership that really works.”
Camino is a chain of Spanish tapas bar-restaurants reflecting the life and soul and tastes of Spain and offering modern, authentic Spanish cuisine. In December 2012, BGF took a minority stake in Camino and invested £3m of growth capital into the business.
Camino’s large restaurant sites are specifically designed to offer customers the dining and drinking culture of Spain, with an emphasis on shared food. It offers a high quality tapas menu, which is complemented by local Spanish wines and beers.
Since BGF’s investment, Camino has opened sites in Blackfriars and Bankside and a dedicated Cava bar called Copa de Cava. The business now has four sites including restaurants in King’s Cross and Monument. They have also hired an experienced Finance Director and worked to build brand awareness of Camino.
The business was founded in 2007 by Richard Bigg and Nigel Foster who have worked together since opening their first bar in Shoreditch in 1995. They have since gone on to open a series of successful bars across London and in Bristol, including: Cargo and Cantaloupe in Shoreditch; Market Place near Oxford Street; and the Big Chill chain of bars in Kings Cross, Brick Lane and Bristol. Camino’s Chairman, Mark Derry, is also a highly successful and experienced restaurateur in the dining sector, having previously built the 36-site Loch Fyne and 20-site Brasserie Blanc establishments.
Camino has won several awards, including Observer Food Monthly Best Bar in Britain 2008 and was shortlisted for the Best Emerging Concept category at the Retailers Awards, voted by industry peers. Bar Pepito, the UK’s first dedicated sherry bar and also owned by Camino, was named Time Out Best Bar in Britain in its first year.
Camino generates revenues of £8m and employs 150 people between its head office and restaurants.