Appetite for Carluccio's takeover
http://news.bbc.co.uk/go/rss/-/1/hi/business/8057639.stm Version 0 of 1. By Will Smale Business reporter, BBC News The company has 41 branches across the UK and Republic of Ireland With the UK recession showing no signs of easing, you'd imagine there would be little appetite at present for launching a takeover of a restaurant chain. Yet that it what has happened this month at Italian-style cafe and delicatessen group Carluccio's, which said it had received an informal approach from an unnamed suitor. Reports have named the potential buyer as private equity group Hutton Collins, which has declined to comment. The news has seen shares in Carluccio's soar more than 45%, further fuelled by suggestions that minority Carluccio's shareholder and celebrated restaurateur Richard Caring may be tempted to launch a rival bid. But with the number of people unemployed across the UK now standing at 2.22 million following the biggest quarterly rise in 28 years, is this too risky a time to buy a restaurant chain? And in the face of such a challenging economic backdrop, why does Carluccio's appear to be such an appealing target? 'Customer loyalty' Founded in London in 1991 by well-known Italian chef Antonio Carluccio and his wife Priscilla, Carluccio's says it aims to serve "great quality, authentic Italian food at sensible prices". It is a very good brand that ticks all the boxes James Dawson of Charles Stanley Stylishly designed in a modern canteen-style, each branch includes both a restaurant - which opens all day for breakfast, lunch and dinner - and a shop selling a wide range of Italian food goods and wine. The company has proved so successful that when it was floated on the Alternative Investment Market in 2005, Antonio and his wife were able to pocket an estimated £11m from the sale of their majority stake. Now owned predominantly by a broad range of institutional investors, Carluccio's has a market capitalisation of £56m, and 41 outlets across the UK and Republic of Ireland. The restaurants have a fresh, modern design With half-year results published this week, the company is proving rather resilient to the recession. While pre-tax profits were down slightly to £2.5m from £2.8m a year earlier, turnover was up 13% to £34.5m. And the firm remains debt-free. Carluccio's blamed the dip in profits on one-off price promotions in January and February, and the weaker value of the pound which was making imports from Italy more expensive, but said it remained confident in its future performance. "Whilst the UK economy will remain challenging over the next six to 12 months, on average over 100,000 customers visit a Carluccio's every week, and continue to demonstrate their loyalty to the brand," says the firm's chairman Stephen Gee. 'Flexible and resilient' For leisure industry analyst James Dawson of Charles Stanley, Carluccio's continuing customer popularity is only one part of what makes it an attractive takeover target. "It is a very good brand that ticks all the boxes," he says. "The interesting dynamics are that it is open all day, and has a retail space tagged onto each restaurant. "In the morning it's a cafe, at lunchtime it can effectively compete with sandwich bars, and then at night it becomes a proper restaurant. This gives Carluccio's flexibility and resilience. "And the result of a longer trading day is much higher cash returns on capital compared with other restaurants." With Carluccio's shares now trading at around 96 pence, Mr Dawson says there is a "good chance" Hutton Collins could make a formal bid of over £1 per share. He adds that a counter bid from Richard Caring, who currently had a 12% stake in Carluccio's alongside his ownership of London's famous Ivy and Caprice restaurants, is "not implausible". No-one from Mr Carling's Caprice Holdings restaurant group was available for comment. Resilient consumers? For UK economists, the continuing success of Carluccio's, and the takeover interest in the firm, can be further explained by the ongoing resilience of consumer spending despite the recession. It's an odd recession in that consumers haven't been hard hit yet Richard Perks, Mintel International The most recent figures from the British Retail Consortium (BRC) showed that retail sales actually rose 4.6% in April on a like-for-like basis compared with last year. While the BRC said sales were lifted by sunny weather and the traditional boost given by the Easter weekend - which was a month early in 2008 - the rise still came despite the big jump in unemployment. Philip Shaw, UK economic for Investec, said there were a number of factors keeping up consumer spending. "It is a surprise, but one suspects the sharp interest rate cuts and reduction in VAT has helped," he says. "So for people with variable rate mortgages, and relative job security, they have more money to spend. "What is different from the last recession of the early 1990s, when consumer spending fell sharply, is that then interest rates were double digit." 'Treating themselves' Tim Green, retail analyst at Brewin Dolphin, said that despite the recession, many people benefiting from lower mortgage costs were continuing "to treat themselves". Carluccio's customers can also stock up on Italian provisions Richard Perks, director of retail research at Mintel International agreed, saying that the UK public was still prepared to eat out if they considered they were getting a good deal. It is perhaps for this reason that Carluccio's and some of its key rival chains, such as Gourmet Burger Kitchen (GBK), are continuing to see their sales rise, even if profits are being trimmed by the need to discount. GBK's owner Clapham House said two months ago that it expects to report a 15% rise in group-wide sales for the year to 29 March, when it reports its latest annual results in July. Clapham House said "GBK has continued to deliver good sales performances, particularly given the general UK economic climate". McDonalds has also reported a 3.2% rise in European sales for the first three months of 2009, as people seek "value" in a recession, while pizza delivery firm Domino's has repeatedly said it is benefitting from consumers looking for cheaper meal alternatives. "It's an odd recession in that consumers haven't been hard hit yet," added Mr Perks. "Yes they are spending less on eating out in general, but firms like Carluccio's are benefiting because it is seen as very good value." And with Carluccio's share price still less than half its 230p high in mid 2007, since when it has fallen alongside the wider declines in UK and global stock values, private equity firm Hutton Collins may consider buying the whole firm too good a deal to resist. |