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Wed 13th Apr 2022 - Arc Inspirations to accelerate growth with £19m BGF investment
Arc Inspirations to accelerate growth with £19m BGF investment: Leeds-based multi-site operator Arc Inspirations is set to accelerate its growth after securing significant investment from BGF for a significant minority stake in the Martin Wolstencroft-led business. BGF is investing £19m into Arc Inspirations in the deal valuing the business at up to £60m. The capital will give the business substantial firepower as it looks to double its footprint over the next few years by opening multiple bar sites in major UK cities, deploying its “cluster” strategy. The announcement marks a new phase for the business, paving the way for an accelerated rollout of its three premium brands – Banyan Bar & Kitchen, Box and Manahatta. The investment will support the company’s ambition to double the business from its current 18 venues, delivering at least four new site openings per year over the next three-to-five years. Wolstencroft said: “We’re delighted to have secured this investment from BGF, which is a committed investor with a track record of supporting growth and success in the hospitality and leisure sector. This funding will enable us to expand our business significantly, allowing us to take advantage of substantial market opportunities over the next few years, as we take our winning brands to more key cities across the UK.” The deal marks the first time Arc Inspirations has introduced external investment to the group. Its expansion to date – since Wolstencroft and co-founder Chris Ure launched the business in 1999 – has been funded by the business and more recently through a renewed partnership with HSBC. Wolstencroft, Ure and managing director Anni Opong remain significant shareholders in the business. In addition, and as part of this process, non-executive director Steve Richards, chief executive of Parkdean Resorts and chairman of UKHospitality, will continue supporting the executive leadership team as non-executive chair. The conclusion of this investment process comes on the back of a year of resurgence and recovery for the business after the challenges of the pandemic. Arc Inspirations recently posted record annual sales, in excess of £40m, and last autumn opened two new landmark venues, in Birmingham (Manahatta) and Deansgate, Manchester (Box). The deal was led for BGF by Barry Jackson and Rob Johnson. Jackson, head of BGF in Yorkshire and north east, said: “Arc Inspirations is an ambitious business with proven concepts and sights set on expansion across the UK regions. We have experience of successfully supporting similar businesses on this journey. Arc Inspirations has already achieved an impressive scale and we look forward to working with Martin, Chris and the team to deliver against the plan to take the business to the next level.” Arc Inspirations operates a cluster model, running premium large-scale bar sites in close proximity to each other, under complementary brands in key towns and cities in the Midlands and the north. It currently employs 1,000 people and its growth plans mean it will recruit a similar number again, over the next three-to-five years. Most recently it announced plans to open a new £2.5m Manahatta in Newcastle’s Collingwood Street on the site of a former Allied Irish Bank, creating almost 100 jobs. It is the group’s second location in the city – it also operates a Banyan Bar & Kitchen in nearby Blackett Street – and is expected to open in late 2022. Wolstencroft added: “This investment marks a new phase for our business and is a genuine landmark moment for us, in our 20-year-plus journey, from when Chris and I opened our first bar in Headingley, Leeds, to where we are now with a group of 18 leading businesses run by a team of outstanding operators. It’s a brilliant outcome and the reason we have been able to do it is down to our people. The determination and effort they have poured into the business every day, especially in the past year, has been exceptional and we’re really excited about the future and what is possible.” Arc Inspirations was advised by KPMG and Gordons while BGF was represented by Squire Patton Boggs. Arc Inspirations features in Propel’s Turnover & Profits Blue Book, which is updated monthly for Premium subscribers and now features 546 companies. Arc Inspirations has turned over an average of £22.5m in the past five years. The Blue Book, which is produced in association with Mapal Group, provides a five-year overview of turnover and profit, ranks companies according to turnover, pre-tax profit and profit conversion. The Blue Book also provides details of directors’ earnings and highest paid directors. Companies can now have an unlimited number of people receive access to Propel Premium for a year for £895 plus VAT – whether they are an operator or a supplier. The single subscription rate is £445 plus VAT for operators and £545 plus VAT for suppliers. Email to sign up

Thinking outside the box – comment by Propel group editor Mark Wingett

To paraphrase an oft trumpeted line from Arc Inspirations co-founder and chief executive Martin Wolstencroft, his company is now a 22-year overnight success story. The rise of the Leeds-based operator of 18 sites across three premium brands – Banyan Bar & Kitchen, Box and Manahatta – may have been gradual, but with new investment on board, on the back of a refinancing earlier this year, it finds itself ready to build on the strong foundations Wolstencroft and his team have put in place. The company can now focus on putting its ability to adapt to consumer trends, a reputation as a good employer and its cluster approach to openings, to the test across a broader range of locations. 

It's a long way since Wolstencroft was working part-time at the Skyrack pub in Headingley. After 18 months, he became operator Whitbread’s youngest ever manager, going on to hit £1m sales. His success prompted a series of promotions, but by the turn of the century, the inner entrepreneur was waiting to be unleashed. With land owner Chris Ure, he opened The Arc in Headingley, which took £60,000 in its first week. A gradual expansion of the business followed, as did its extension beyond the city of its birth. Along the way it learnt to adapt, landing on the three concepts it is currently keen to roll out to further cities across the country. 

That roll out had until a few years ago been funded by cash flow. In 2018, the company agreed a new £7m senior debt deal with Santander to fund expansion. It followed the appointment of then Casual Dining Group chief executive Steve Richards to its board as a non-executive director. By the end of the year, advisors had been appointed and the company was ready to explore its options. A mixture of the uncertain trading environment due to Brexit and then the pandemic has meant that was put on hold, not that Arc Inspirations stood still. During the pandemic, the company accelerated a change programme designed to strengthen the business. This included the introduction of a central sales force, driving 30% of revenues through pre-booked sales, investment in outdoor spaces and renegotiating property leases across the business. The group opened a new Manahatta in Birmingham and a new Box in Manchester towards the end of last year and has a Manahatta in Newcastle in the pipeline. This follows an encouraging period of trading in the second half of 2021, with sales up 42% from mid-July to mid-December versus the same trading period in 2019. This included a group record sales week in August, when it achieved sales of more than £1m across its venues. On the back of this strong return to trading, Arc Inspirations expects to produce another record performance in terms of both profit and sales for its full financial year to 31 March 2022.

With BGF’s funding behind them, the company is set to open four sites per year – doubling the business over next four years. The focus is “very much about revenue and profit rather than a site numbers game”. It will stick to its cluster model, running premium large-scale bar sites in close proximity to each other, under complementary brands in key towns and cities in the Midlands and the north, before branching out further – an international play not, as yet, on its radar. Plans to make Nottingham its next port of call for its brands are already thought to be underway, with the company emboldened that each concept is complimentary (Banyan more all-day fare, The Box – sports focused, and the more premium Manahatta) and doesn’t cannibalise trade – its three Leeds sites are within 500 yards of each other. There is a feeling it could, if it wanted to, push Box a bit more, as there remains a gap in the market for a good sports bar concept. In investment terms recent openings have ranged from about £1.5m to, in the case of Newcastle, later this year, £2.5m, which will be the company's biggest spend to date. These are big sites and require significant capex. Although like everyone across the sector it is facing operational challenges, current trading is understood to be “very strong”. 

The company’s performance, which was recently underlined with a double award win, is also underpinned by Wolstencroft’s eye for operational details and the culture he has fostered and is rightly proud of. The group makes great play of how it promotes from within, typified by how a number of the now senior team worked their way up through the business, none more so than managing director Anni Opong. In a sector facing a staffing crisis, it is details like this, coupled with the momentum the company has behind it, which should help it recruit the right people to match its expansion ambitions. 

For BGF, the current backer of, among others, Mission Mars and Giggling Squid, and off the back of a successful exit from The Coaching Inn Group, it is backing a business with a good and stable management team, strong brands that tap into consumers’ need for experience-led occasions, has opportunities to grow and has demonstrated strong performance over the past 12 months, when it has been allowed to be open. With other traditional sector private equity players (at this level of investment) currently sitting on their hands, and trade players, such as Revolution Bars Group and Stonegate focusing on their existing estates, BGF has taken the opportunity to make a move, backing not just Arc Inspirations but the sector’s recovery, and I expect more moves in the market to follow from it over the coming months. It will also provide confidence to Arc Inspirations’ peers, such as The Alchemist and Inception Group, which both were looking to explore their options pre-pandemic, that investors are out there and still keen to invest in premium bar businesses. 

As a useful rugby league player in his day – Wolstencroft as second row forward represented Great Britain at student level – he is used to doing the hard yards, the dirty work, in order to achieve his goals. With new funding behind it, he and Arc Inspirations now have the chance to run with the ball and to pull away from the pack.

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