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Deal Landscape

Deal Landscape. Mark Sheehan Managing Director. Deal Landscape. Contents. 1. Background - early 2007. 2. Deal landscape. 3. Historical outlook for 2008. 4. Signs of change. 5. Credit Crunch. 6. Leisure sector. 7. 2008 – pipeline re-visited. 8. Recent activity. 9. Outlook….

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Deal Landscape

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  1. Deal Landscape Mark Sheehan Managing Director

  2. Deal Landscape

  3. Contents 1. Background - early 2007 2. Deal landscape 3. Historical outlook for 2008 4. Signs of change 5. Credit Crunch 6. Leisure sector 7. 2008 – pipeline re-visited 8. Recent activity 9. Outlook…

  4. Strong UK economy with high consumer confidence and strong discretionary spend rising house prices low interest rates low inflation Strong investor confidence in the Leisure & Hospitality sector High levels of structured funding available – mainly syndicated Large deal sizes >£150million Big Deal multiples on leasehold businesses in excess of 10x run rate Ebitda plus multiples of projected profit Deals done to buy market share 1. Background - early 2007

  5. Jun06 GI Partners buy 290 Spirit pubs from Punch for £571m Jul06 M&B purchase 239 pubs from Whitbread for £497m at 11x ebitda multiple Sep06 Greene King purchase Hardys and Hanson 268 pubs for £271m Oct06 Admiral Taverns purchase 769 pubs from Enterprise Inns for £318m Nov06 London Town purchase Petchley Pubs 167 pubs predominantly freehold for £94.6m Nov06 Cinven acquire Gondola Holdings for £900m Nov06 JT Davies Investments purchase Brakspear in a deal valuing the company at £106m at 19.8x underlying 2005 earnings Dec06 Caffe Nero taken private by Saratoga for £235m at 15.1x ebitda multiple Dec06Blackstone Group acquires Tragus Holdings for £267m at 10.7x ebitda multiple (Bridgepoint, Kaupthing underbidders) Jan07 Marstons purchase Eldridge Pope from Michael Cannon for £155m. Mar07 R20 offer of 200p per share wins bidding war with Tragus and purchases La Tasca for £124m Apr07 Admiral Taverns buy 869 leased and tenanted pubs from Punch Taverns for £326m May07 Tragus Holdings (Blackstone) buy Strada for £140m. A price reflecting future growth (c£2.5m per site) 2. Deal landscape

  6. IPO’s Wagamama reported at £225m EV Pret a Manger planned float in excess of £450m Gaucho expectation in excess £100m Tragus planned listing in Q1 2008 PPM – Paramount Restaurants rumoured IPO Rumours speculated sale of Spirit by Punch Taverns Whitbread Pub speculation Regent take out of M&B by Punch Opco / Propco intended Opco / Propco of M&B Potential Conversion to Reit status Enterprise Inns Greene King 3. Historical outlook for 2008

  7. Fundamentals in marketplace appeared wrong leverage / gearing property yields / interest rates big deal multiples US Sub Prime crisis reported US economy stalled over widespread mortgage defaults Libor spread over base rate increased 4. Signs of change Spread % Base rate 3m Libor Rates % Spread

  8. Sep07 Northern Rock crisis run on UK’s 5th largest mortgage lender Jan08 Price of Oil rises to $100 per barrel commodities prices worldwide increased Early 08 Financial Markets in Turmoil large falls in global stock markets increase in inflation to +3% May08 falling house prices and negative equity rights issues to shore up balance sheets: UBS, Lehmans, RBS, HBOS, collapse of large financial institutions: Bear Stearns, Northern Rock Jun08 Banks say they are open for business pretty much closed 5. Credit crunch

  9. Dramatic loss of investor confident across the leisure sector Smoking ban couldn’t have come at a worse time (Jun07) Wet led businesses and late night licenses worst affected Inflationary fears Casual dining market proving to be more resilient to downturn Best operators continuing cautious expansion 6. Leisure sector

  10. Failed IPO’s due to continued volatility in the stock market and investors failing to meet the companies’ own valuations Tragus and PPM planned listings have been put on ice investors baulk at £225m IPO valuation of Wagamama Pret a Manger takeover by Bridgepoint Capital for £345m valuing the company at over £100m less than the intended IPO float value Gaucho bought by Intermediate Capital Group valuing the business at an estimated £125m(?) Reits not yet happened (Enterprise have go ahead, Greene King and Marstons on hold) Regent Inns up for sale – share price crash M&B - £140m loss on Hedge - Abandoned Opco / Propco 7. 2008 − pipeline re-visited

  11. Jan08 Abu Dhabi Inv Auth buy Hakkasan & Yauatcha for £30.5m Richard Caring buys Soho House Group for £105m Aguilo takes 5 of 8 Sports café sites out of administration Feb08 Bridgepoint acquire Pret a Manger for £345m Mar08 Quilvest PE buy YO! Sushi for £50m Candu placed in administration Novus Leisure buy 7 of 11 Soho Clubs & Bars placed in administration for c.£8m Laurel Pub Co taken out of administration into Town & City Pub Company and Bay Restaurant Group 8. Recent activity

  12. Apr08 Massive taken out of administration by Bridgehouse Capital Summit placed in administration Luminar sells 26 underperforming nightclubs to Cavendish Bars Ltd for a reverse premium May08 LGV Capital buy 65 freehold pubs in the Channel Isles from Duke Street Capital Jun08 Food and Drink Group share suspension Currently over 500 pubs on the market from majors Smollensky’s for sale again (sold September 2007) Recent activity cont’d….

  13. 9. Outlook… • Prolonged credit crunch now looking like UK is facing risk of recession • Large decrease in M&A activity across all sectors • Increasingly difficult to fund deals • impossible to syndicate debt • perceived risk in sector • bank fees up and margin up (over Libor) • loan to value down • Deals done at much lower multiples of earnings and set to remain at current lower levels • Smaller deal sizes <£50m • Many companies now undervalued and represent good value acquisitions • Continued consolidation in the sector – led by both operators and PE • Activity based on strategic opportunities or distressed sale • UNCERTAINTY REIGNS

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