Hony’s pizza takeaway

The PE firms wanted to create the UK's leading casual dining group and they succeeded. With the addition of the ASK and Zizzi brands, the company - Gondola Group - had 497 restaurants across the UK and the Republic of Ireland by June 2005, more than six times the number of its nearest competitor in the premium pizza-pasta space. The non-core assets were transferred out of the group ahead of its IPO later that year.

Cinven took Gondola private again in 2006 through a GBP900 million ($1.53 billion) deal, but it wasn't until 2010 that the domestic and international Pizza Express businesses were reunited. Gondola and Cinven re-engaged with the international partners and set about bringing the business up to date.

Four years on, the China angle has helped facilitate Cinven's exit. Hony Capital last week agreed to buy Pizza Express for about GBP880 million ($1.5 billion) - valuing the business at 10x EBITDA - with a view to supporting management's China expansion plan.

"It is a brand that is very well established in the UK and the UK business is still growing," John Zhao, Hony's CEO, tells AVCJ. "More importantly and excitingly, it is well accepted in China in markets like Hong Kong and Shanghai. We think it has the potential to have many more stores here. There is a very large unmet demand from China's rising middle class."

There are now 436 Pizza Express restaurants in the UK and 68 overseas, including 12 in Hong Kong, nine in Shanghai and one in Beijing. According to Zhao, sales came to more than GBP370 million last year and EBITDA exceeded GBP92 million. Hony is in the process of arranging debt financing for the acquisition. Equity will come from Hony's fifth US dollar-denominated fund, which has a corpus of $2.35 billion and is now over 50% deployed.

Pizza Express accounted for the more than six out of every 10 of the group's 752 restaurants as of June 2013. It also made up the bulk of GBP590 million in sales and GBP112.2 million in EBITDA. Debt servicing has prevented Gondola from achieving net profit but it has always been cash generative. The debt maturities were extended in October 2013 while the sale of Gondola's Byron burger business at the end of the year saw some debt paid down and a dividend taken out.

Hony plans on retaining the existing, experienced management team and rely on it to keep the business ticking over in the UK while providing assistance in China.

The PE firm has three core investment targets: state-owned enterprises in need of restructuring; private companies with succession planning issues; and taking Chinese firms overseas and bringing their foreign counterparts to China. "Cross-border is the newest theme and also the fastest-growing investment type," Zhao adds.

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• Topics
• Consumer
• Buyouts
• Europe
• Greater China
• Hony Capital
• Cinven
• buyout
• China
• Europe
• Consumer