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Thu 12th Sep 2013 - Cote 'might have raised more money with IPO' says analyst
Cote 'might have raised more money with IPO' says analyst: Numis Securities analyst Douglas Jack said today that the merger and acquisitions market in the hospitality sector is now the most active it has been since 2007. However, he questioned whether Cote’s owner, Richard Caring, could have raised more money if he had chosen to undertake an Initial Public Offering (IPO) rather than sell his stake in the chain to a private equity firm. Jack said: “Yesterday, Cote, the 45-strong French brasserie chain, was sold to private equity firm CBPE for £100m and William Pears Group commenced exclusive talks to acquire 300 tenanted pubs from Greene King. In terms of acquisitions, the licensed retail sector is the most active it has been since 2007, largely due to the return of private equity. The Cote deal is the restaurant sector’s sixth major transaction since November, following Rutland Partners acquiring Pizza Hut (330 sites), Tesco acquiring Giraffe (48 sites), Lloyds Development Capital acquiring D&D London (32 sites), Bowmark Capital acquiring Drake & Morgan (6 sites) and Kout Food Group acquiring Little Chef (78 sites). Cote was acquired for 10.0x July 2012 Ebitda. This compares to the stockmarket valuing The Restaurant Group on 12.7x and Prezzo on 12.1x mid-2012 EV/Ebitda, a 21 to 27% premium to the acquisition multiple [that] private equity paid. Should Cote have considered an IPO? The Restaurant Group and Prezzo are currently valued at 11.3x and 10.2x EV/Ebitda, respectively, based on December 2013, to which Cote must have been sold at an even larger discount given that its Ebitda was growing at 47% in 2012. With renowned management, a good brand with 53% of its sites in London, a strong expansion pipeline and favourable operational metrics, Cote might not have been valued at such a large discount by the stock market.  Greene King’s planned disposal of 300 tenanted pubs would reduce its tenanted estate to just over 900 pubs, down from 1,514 in May 2012. Although large tail-end disposals tend to bring a lotting discount and short-term earnings dilution, we expect the proceeds to be recycled quickly into higher-return, growing segments. After all, Greene King has stepped up expansion and is willing to be acquisitive. We believe this long-term strategy is right and that it is likely to be fully supported by its investors. The willingness of public and private equity to inject capital into the sector has to be positive, facilitating the re-allocation of assets to more appropriate owners and managers. After five inactive years, this opportunity should not be overlooked.”


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