Jun 08

Deal Landscape

Mark SheehanManaging Director

Jun 08

Deal Landscape

Jun 08

Contents

1. Background - early 2007

6. Leisure sector

5. Credit Crunch

3. Historical outlook for 2008

4. Signs of change

2. Deal landscape

9. Outlook…

8. Recent activity

7. 2008 – pipeline re-visited

Jun 08

1. Background - early 2007

• 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

Jun 08

2. Deal landscape

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

Dec06 Blackstone 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)

Jun 08

3. Historical outlook for 2008

• 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

Jun 08

4. Signs of change

• 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

Rat

es

%

Spread %

Base rate

3m Libor

Spread

Jun 08

5. Credit crunch

Sep07 Northern Rock crisisrun on UK’s 5th largest mortgage lender

Jan08 Price of Oil rises to $100 per barrelcommodities prices worldwide increased

Early 08 Financial Markets in Turmoillarge 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

Jun 08

6. Leisure sector

• 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

Jun 08

7. 2008 − pipeline re-visited

• 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

Jun 08

8. Recent activity

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

Jun 08

Recent activity cont’d….

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)

Jun 08

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