Taking a contrarian view
Due to our knowledge of the sector and our operational resources, with PizzaExpress we developed a thesis and assessment of the value of the business that differed from the market.
When we acquired the business in 2003, PizzaExpress was a popular brand and a market leader in the UK casual dining sector. It operated in the premium/authentic sector of the eat-in pizza/pasta market, in a variety of locations across the UK.
Under our ownership, PizzaExpress was merged with ASK Central (“ASK”) in 2004 to create a leading casual dining group with over 500 restaurants throughout the UK operating under the PizzaExpress, ASK and Zizzi brands, and serving more than 30 million customer meals each year.
Since its listing in 1993, PizzaExpress had been a ‘darling’ of the markets, with a record of unbroken growth; however, in 2002 public market perception of the group turned negative due to a significant weakening in like-for-like sales and a lack of confidence in the business’ strategy.
Our significant experience in the leisure sector, our operational resources and our relationship with one of the co-founders of the business allowed us to develop a differentiated strategy and assessment of the value of PizzaExpress. We, alongside co-investor Capricorn Ventures, completed the public-to-private of the business in June 2003.
What we did
Post-acquisition we kick-started a 'back-to-basics' operational transformation plan, which resulted in enhanced profitability and improved customer experience, through launching a new menu, introducing mystery shopping and restructuring staff incentives.
In 2004 we acquired ASK, one of PizzaExpress' main competitors. The merger was highly accretive due to significant synergies being harnessed as a result of the combination.
After the acquisition of ASK, we worked with management to strategically reposition each of the brands to optimise profit generation, developing a co-location strategy and evaluated geographical roll-outs.
How we exited
In November 2005 we led a successful IPO of Gondola Holdings (the combined group) on the London Stock Exchange. The shares were priced at £3.20, representing a market cap of £431 million. At the IPO date TDR partially exited the investment.
Whilst the IPO had been successful, we believed there was still significant upside in the business, and this proved to be the case as in the middle of 2006 Cinven approached the business with a take-private offer at £4 per share.
In December 2006 we fully realised the deal, resulting in a gross multiple of 6.0x and a gross IRR of 77.5%.
Date of investment: June 2003
Deal type: Public-to-private
Exit date: December 2006
Exit route: IPO