As the Biggest Restaurant Chains in the UK Fall into Bankruptcy, Attention Turns to KKR & Other PE Firms that Own Them

PE firms sit on lots of cash but won’t invest it in their stripped-bare and failing restaurant chains.

By Nick Corbishley, for WOLF STREET:

After more than three months of not being able to serve either food or drinks, KKR-owned Casual Dining Group (CDG), one of the UK’s largest restaurant groups, collapsed into administration, a form of bankruptcy under UK law, on Thursday. The company, which owns the Bella Italia, Café Rouge and Las Iguanas restaurant chains, said it plans to shut 91 of its 250 outlets and cut 1,900 jobs. Bella Italia and Café Rouge are the worst hit, with 35 and 32 closures, respectively.

Like many restaurant groups, CDG was already struggling before the arrival of Covid-19 prompted the UK government to shut down all non-essential businesses in late March. Between June 2018 and June 2019 alone, more than 1,400 UK restaurants closed – the result of overcapacity in the sector, weak consumer confidence, and rising costs.

CDG is also no stranger to restructuring processes. In 2014, it entered a company voluntary arrangement (CVA), an insolvency procedure that allowed it to restructure its debt. Four years later, the company changed hands from private equity firm Apollo Management to private equity firms KKR and Pemberton Capital Advisors in a £150 million debt-for-equity swap.

Now, having fallen into administration once again, just two days before restaurants in the UK were finally allowed to reopen, albeit under severe restrictions that will make it even harder to turn a profit, CDG is on the lookout for a new owner, or owners. It has reportedly begun negotiations with “a number of potential buyers,” including European PE firm Aurelius Equity Opportunities, which has offered to buy up Café Rouge and Bella Italia. CDG’s other main asset, the Mexican-themed Las Iguanas chain, has apparently piqued the interest of UK-based PE firm Endless.

CDG is not the only UK restaurant group to have hit hard times in the wake of the lockdown. Chains including Carluccio’s and Chiquito have already hit the wall, leading to thousands of job losses. Chiquito’s owner, The Restaurant Group (TRC), was, until recently, the UK’s largest restaurant operator, with over 300 restaurants, including the Italian-themed chain Frankie and Benny’s and the pan-Asian chain Wagamama. Around a week ago, TRC also went into administration, announcing plans to close down 125 of its sites and lay off 3,000 workers.

Burger chain Byron has also appointed administrators and is seeking a new buyer. It if fails in that task, up to 1,200 jobs could be at risk. The Azzurri Group, which operates the Ask Italian, Zizzi and Coco di Mama brands and is owned by European PE firm Bridgepoint Capital, is also looking for a new owner. Other groups such as Prezzo, Wahaca and Wasabi have hired advisers to explore ways of keeping their businesses alive. Like CDG, many of them are hoping that a PE firm will swoop in at the last minute with an offer.

But a lot of PE firms are already nursing big losses from their own recent incursions into the UK’s casual dining sector. Since 2014, PE firms have splashed £10.4 billion on 132 deals in the UK’s restaurant and bar sectors, according to data from PitchBook. Now, many of them are lumbered with assets that are losing value fast due to the lockdown and the uncertain future facing the restaurant sector as a whole.

It’s no surprise that PE-owned restaurant groups are among the first casualties of the coronavirus crisis. Just as has happened in the brick-and-mortar retail sector in the U.S., many PE firms have made their money by stripping capital out of their portfolio companies via special dividends funded by “leveraged loans” that are piled on the restaurant chains to carry.

This has left many PE-owned firms with little cash on hand and lots of debt to repay, leaving them in no position to weather even the mildest of storms, let alone a once-in-a-lifetime tempest like the Pandemic. In the U.S., 34 PE-owned companies filed for bankruptcy between March 1 and June 14, including household names such as Neiman Marcus, J.Crew, or car-rental company Advantage.

Though the PE industry has spent years building up “dry powder” — money that investors have committed to PE funds that hasn’t yet been invested — which reached a record $1.45 trillion globally as of June, most PE funds are loath to use this new cash to inject more capital into their stripped-bare and failing retailers, restaurants and rental companies they bought years ago. They’d much rather use the money — or may be obligated to use the money — for new investments.

Around 85% of all the dry powder in the buyout industry is allocated to funds raised from 2017 to 2019, according to analysis by the investment and consulting firm Cambridge Associates. Funds raised in earlier years are “running on fumes,” Andrea Auerbach, head of global private investments for Cambridge, told The Wall Street Journal.

Even if firms wanted to inject newly raised funds into a struggling older investment, they might be restrained from doing so by their fiduciary obligations to their investors, said Brett Palmer, president of the Small Business Investor Alliance: “Fund managers have an obligation to their limited partners to ensure that the next dollar invested is a data-driven, market-driven decision, and not an emotional decision” that “has to make financial sense.”

At the moment, with many people still worried about the risk of Covid infection and new health and safety regulations shaking up the entire consumer experience, and with consumer demand uncertain, an estimated 47% of British pubs and bars and 53% of restaurants decided not to reopen this weekend. By Nick Corbishley, for WOLF STREET.

A zombie well before the pandemic, the UK company had racked up huge debts to finance rapid growth in a sector that had started shrinking some time ago. Read… Mall Giant Intu Collapses Into Bankruptcy

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  73 comments for “As the Biggest Restaurant Chains in the UK Fall into Bankruptcy, Attention Turns to KKR & Other PE Firms that Own Them

  1. Joe
    Jul 4, 2020 at 3:22 pm

    Smart money on the side waiting for…
    There is nothing to currently buy in that isn’t a risk due to a multitude of factors.

    • 2banana
      Jul 4, 2020 at 4:39 pm

      There are plenty of low risk investments out there.

      But they basically offer little in return.

      So…off to the high risk casino to get some yield.

      • Joe
        Jul 5, 2020 at 6:30 am

        Even when these companies and businesses go bankrupt and are sold pennies on the dollar, there is risk as you assume the liabilities that the companies leave behind. Be it taxes and insurance on properties or possible environmental liabilities.
        Cash or solid trading assets like gold are the only smart play right now to have. So, this is why gold is getting very difficult to get.

  2. BuySome
    Jul 4, 2020 at 3:24 pm

    I would guess that “cash on hand” does not actually sit on pallets in a vault nor carry any serial numbers. Therefore, just as easily evaporated as debt instruments and shareholder claims if redemption comes into play down the line. At the same time, “Welcome to Taco Bell” the only restaurant on every corner. Will that be animal-free meat substitute or straight processed-grass in your order? Please feel free to select nut or nut-free section for seating.

  3. Charles Ponzi
    Jul 4, 2020 at 4:09 pm

    Fascinating stuff, the PE firms have a fiduciary obligation not to invest in the firms they currently own, yet they sell CLO’s to harvest special dividends to juice their returns from those same businesses.

    German leaders in the past have characterized PE firms as locusts. It appears that have morphed into vampires, mastering the art of Exsanguination.

    Is it any wonder that the precariat makes are rioting in the streets?

    • Spartacus
      Jul 5, 2020 at 3:01 am

      Excellent comment

    • Lune
      Jul 9, 2020 at 3:29 pm

      Don’t blame the PE firm. Blame the pension executives who bought those leveraged loans knowing they’re designed to blow up in bankruptcy in a few years. Caveat emptor.

      (Actually, PE business practices were banned until the 80s when the financial markets were deregulated. Thus was borne the Leveraged Buyout (LBO) firms. And they got such a bad rep in the 80s/90s for destroying many good companies, that they changed their names to Private Equity, despite being neither private, nor injecting a lot of equity.

  4. Fat Chewer.
    Jul 4, 2020 at 4:26 pm

    “Fund managers have an obligation to their limited partners to ensure that the next dollar invested is a data-driven, market-driven decision, and not an emotional decision” that “has to make financial sense.”

    Scary. I thought that was always the case, but it seems there was an emotional element to PE decision making. I would imagine that relates to the thousands of workers who will be out of a job. Y’know, the collateral damage.

    Strange how there was no data driven analysis of their own leveraging, asset stripping and executive bonuses destroying the value of the company. Perhaps that emotional decision will involve them giving back their ill gotten gains to fund the company in these precarious times. A road to Damascus type realisation that their own greed has caused this mess. Doubt it.

    • 2banana
      Jul 4, 2020 at 4:36 pm

      Data driven = how to maximize the bonuses and special dividends the executives get

    • MonkeyBusiness
      Jul 4, 2020 at 9:14 pm

      Data driven = “What will make ME the most money”
      Market driven = “Top of Market Compensation also … for ME”
      Has to make financial sense = “For ME”

      ME ME ME that’s the battle cry of PE.

      • Javert Chip
        Jul 5, 2020 at 5:08 pm

        Instead of just virtue signaling, you and your like-minded friends could easily inject some/most/all of your money in some/a few of the restaurant locations that are about to be shut down, thus saving jobs.

        You could literally do it tomorrow morning with envelopes of cash, or a little later in the week with a “go fund me”.

        Given systemic changes these restaurants are experiencing (resulting in customers spending money elsewhere), you’ll undoubtedly quickly earn a black-belt and much deeper understanding of “lack of customer demand” and “negative return on equity”.

        At bottom, customers (you and people like you) are the ones making decisions not to patronize these establishments.

        • MonkeyBusiness
          Jul 5, 2020 at 6:30 pm

          Not sure if you were responding to me, but I don’t cook. I always buy from outside. Timewise, it’s more economical for me, so yeah not virtue signalling here.

          I’ve cooked ZERO times in the last oh say, 7 years. Excepting the occasional instant noodles that is. No one’s perfect.

        • fajensen
          Jul 7, 2020 at 12:38 am

          Bailing failing investors is the job of the tax-payers and there is already a great system for that.

        • Lune
          Jul 9, 2020 at 3:33 pm

          I have no problem with PE firms if they buy these companies with their own money, or with loans they carry on their own books. But they don’t. They essentially buyout these companies by forcing the companies themselves to take out loans. The PE companies carry no risk, which is why when their portfolio companies go broke, the PE companies are still handing out big bonuses.

          If I could get into that gig, plus have the Fed backstop my failed investments (e.g. Cereberus and Chrysler), then sure, I’d put “my” money into it and become a billionaire too.

          Until then, it’s not virtue signaling to call these so-called brilliant guys nothing but carjackers running an illegal auto-stripping joint, except since it’s run by Harvard MBAs, it’s legal and sycophants like you think it’s somehow doing God’s work.

  5. Tom Stone
    Jul 4, 2020 at 4:30 pm

    “Las Iguanas”?
    Are the Lizard people finally revealing themselves?

    • 2banana
      Jul 4, 2020 at 4:34 pm

      Chicken of the tree.

      • polecat
        Jul 4, 2020 at 9:20 pm

        Ahhhhhh! …

        The lightbulb flickers.

        “… probably be pretty tasty in a tamale, wouldn’t you say??”
        “Hey yeah .. let’s start a franchise!”

    • char
      Jul 4, 2020 at 10:34 pm

      It sounds Spanish and a bit cowboy-iss. Perfect for a restaurant inspired by South America.

  6. 2banana
    Jul 4, 2020 at 4:33 pm

    How is this even legal?

    It looks and smells like fraud.

    “many PE firms have made their money by stripping capital out of their portfolio companies via special dividends funded by “leveraged loans” that are piled on the restaurant chains to carry.”

    • Crazy Chester
      Jul 4, 2020 at 8:45 pm

      The follow up question for $40 under ‘Where’d the Money Go?’

      A. Original Investors who believed in the product.
      B. Bankers who also believed and made the first loans.
      C. Night dwelling PE Partners who wear gloves to leave no trace.
      D. Overweight Bankers who dine with the PE Partners and make the last loans.
      E. Lobbyists who wrote the tax code where the taxpayer cleans up the debris.
      F. Trustees who make the distributions to vaguely familiar people who cast no reflection.
      G. Poof.

      Let’s ask the PE guys. What? They’re sailing off the coast of Marseilles until there is a vaccine?

      Ok then, we can figure this out. See:

      – The PE guys buy a struggling business;

      – Then they borrow money in the name of the struggling business (??) and with these loans pay themselves outrageous bonuses they use for some vanity thing like the naming rights to an NFL Stadium;

      – Then the business goes bankrupt because, being loaded with debt, has not been able to invest in the changes necessary for the business to be profitable;

      – Then everybody starts looking around to see who actually owns the business and wondering how it got left in the street to be run over and why it’s owner wasn’t around and didn’t seem to care;

      – Then someone mentions the PE guys but they are off sailing;

      – Then the Trustee distributes what’s left and the same PE guys come in under different names to buy up stuff for pennies on the dollar hoping they can sue somebody for something someday.

      You know, just may have to go with ‘Poof’, above.

      Q: Who are these Piggies who make these last loans in the name of a dying business? They have to know. So how do they make money by losing money? (I’ve got a bad feeling I know the answer to this one).

      Q: In a couple of decades will we be pulling down these PE Stadium names to toss into the fire pit before the non-social distancing pillaging of businesses located in the apartheid areas begins? (I’ve got a bad feeling I know the answer to this one too).

      Right: First we take Manhattan. Then we take Berlin.

      • Javert Chip
        Jul 5, 2020 at 6:23 pm

        Crazy Chester

        You’ve written about the most accurate description of PE that I’ve recently read (unsure about “sailing off the coast of Marseilles”, but I’ll concede that one).

        Everybody, including little kids, know how the game is played:

        1) Turkey company gets into financial trouble for any number of systemic reasons (people decide they don’t want to buy there anymore; the place looks like a dump; customer service sucks, owners are crappy business managers; whatever)

        2) PE guys smell the stench of dying turkey company a thousand miles away

        3) Greedy PE guys do what everybody knows is a crazy supercalifragilisticexpialidocious deal with greedy (and probably incompetent) owners of turkey company

        4) PE guys tell turkey company to get humongous loan from bank & pay PE guys a humongous “management fee”

        5) Bank securitizes or otherwise off-loads turkey company loan to…wait for it…MANAGERS OF OTHER PEOPLE’S MONEY (pensions, et al). The technical Harvard MBA banking term is “get this friggin’ time-bomb off our bank’s balance sheet”.

        6) Surprise! Turkey company can’t pay back loan, and, sooner or later, goes belly-up, causing beneficiaries of the fund run by MANAGERS OF OTHER PEOPLE’S MONEY to take it in the shorts.

        7) Little kids, PE managers, MANAGERS OF OTHER PEOPLE’S MONEY, and most any person with an IQ above room temperature knows that allowing banks to make these kinds of loans is unethical and immoral, even if it isn’t illegal.

        Here’s the 2-part “legal” fix:

        A) Banks cannot make loans to turkey companies without unstripable collateral (ie: turkey company cannot get a bank loan without sufficient collateral remaining in place until loan is repaid); HELL YES, THIS MEANS LOTS OF TURKEY COMPANIES WILL NO LONGER QUALIFY FOR BANK LOANS

        B) Pension funds & other like institutions (run by PEOPLE MANAGING OTHER PEOPLE’S MONEY) have fiduciary responsibility NOT to purchase these kinds of loans without sufficient collateral remaining in place until loan is repaid (NOTE: Pension funds are generally not equipped to monitor hundreds or thousands of collateralized loans); HELL YES, THIS MEANS A LOT FEWER PE DEALS WILL GET DONE

        Little kids everywhere rejoice!

    • Paulo
      Jul 4, 2020 at 10:16 pm

      I don’t know 2 banana. I’ll have to go ask Mitt Romney about how PE firms work.

      • BrianC
        Jul 5, 2020 at 6:39 am

        Or Jerome Powell…

    • Rowen
      Jul 5, 2020 at 7:18 pm

      leveraged buyout + unlimited federal reserve spigot = TILT

    • fajensen
      Jul 7, 2020 at 12:34 am

      Fraud doesn’t exist in neo-classical economics so it cannot happen.

  7. Petunia
    Jul 4, 2020 at 4:34 pm

    Restaurants rise and fall quickly. Once you start cutting back what made them special they are finished. PE never adds anything of value to a business, they only extract what’s good in a business. It’s getting so that I can tell when a business is owned by private equity, everything that was special about it is gone.

    • polecat
      Jul 4, 2020 at 9:34 pm

      PrivEQs are but a curse on society. They should be purged out of existence. But they aren’t, are they ….

      Our Reps & Senators see to That! .. on behalf of the Cloud People.

  8. MonkeyBusiness
    Jul 4, 2020 at 4:53 pm

    PE is one of those wondrous American “invention” that never stops giving.

    Without Covid19, we were still headed towards dissolution thanks partly to these monkeys.

    Also, I believe Wolf mentioned this once before (or not), …
    “…. the current administration’s Labor Department opened the door to including private-equity funds in 401(k) plans as part of diversified funds, such as all-in-one “target date” mutual funds.”

    Between Private Equity, our bullshitting BLS, and our Labor Department, we might as well elect Stephen Schwarzman as President.

  9. MCH
    Jul 4, 2020 at 4:54 pm

    It appears that PE firms from Europe and USSd are all cut from the same cloth. Take a concept, successful or not, determine its intrinsic value, swoop in with cash, strip the concept to the bones ditch the carcass. Rinse and repeat.

    No wonder there is a renewed interest in communism. These PE firms are literally begging for government intervention because of these sleazy tactics.

    • Brant Lee
      Jul 4, 2020 at 6:39 pm

      The Fed and Congress run the country like a PE firm, sucking the financial life out of the country for themselves and friends.

    • pogohere
      Jul 4, 2020 at 6:42 pm

      I realize you don’t mean “These PE firms are literally begging for government intervention because of these sleazy tactics.” literally. Especially since the “government” is a wholly owned subsidiary and they have no need to beg their valets to deliver.

      • MCH
        Jul 4, 2020 at 10:55 pm

        Not in the literal sense.

        Sooner or later, the tactics these bozos are using are wiping out whole swaths of the economy. The morons in charge are aiding and abetting, is it any wonder that into this kind of vacuum you end up with nutjobs getting into elected office and getting attention. I’m talking both sides.

        It started in 2016, but then the revolution went on in 2018 and hopped the fence so to speak. I am actually surprised that Pelosi doesn’t have a primary challenger yet, but the so called moderate candidates are being taken out to the woodshed by the extremes on both sides. This is going to be a trend that continues for a while.

        At this rate, we’ll either end up with communism (oh excuse me, socialism) or fascism (oh, excuse me, America First).

    • Xabier
      Jul 5, 2020 at 6:46 am

      Unfortunately, with state-capitalist Communism you start off with the bare-bones carcass rather than it being the end result!

      Check up on how truly awful the retail and hospitality experience was in the old Soviet bloc……

      That only will flourish which is the fruit of personal care, pride and, yes, profit.

      • MCH
        Jul 5, 2020 at 3:25 pm

        I agree with you on the awfulness of real communism, because the fundamental aspect of communism completely ignores human nature.

        But we’re going to end up in those awful scenarios the more capitalism like this are allowed to run amok. There has to be some degree of regulation. Think of the old Standard Oil, that was capitalism run amok.

        One could also argue that the tech companies of the world today is also capitalism run amok, it needs to be checked in some way. How to check this is not obvious, that much is for certain.

        If you look at Amazon for example, it’s very well vertically integrated, and leveraging its scale and capital, it isn’t a horizontal monopoly in any classic sense, but is is strangling businesses by various degrees. The limitations are harder, after all, there is nothing to stop Walmart from going into the cloud business, or Microsoft from going into retailing, or Microsoft from collaborating with Walmart and giving them a bunch of money to stave off Amazon as a threat. But these are not credible alternatives. So, do you punish Amazon because it’s successfully leveraging? Same with Apple, punish them because they’ve gotten so good at hardware and software integration that no one can compete? That makes no sense.

        These are harder problems to solve, but government has to figure it out correctly without coming down with a hammer that kills the golden goose. Cause that’s what those two companies are.

        Additionally, some of these tech companies aren’t needed, seriously, why does anyone need a Twitter or a Facebook. They literally are enabling destruction of society as a whole. (again, because they didn’t bother to account for human nature, both Jack and Mark are missing the point, on the one side, they slip to censorship based on whatever sounds good at the moment, on the other, it’s let it all go, free speech)

        Anyway, getting off on a tangent, but I do agree, communism (Soviet style) = bad.

  10. R2D2
    Jul 4, 2020 at 6:26 pm

    The UK highstreet restaurant chains — like Bella Italia — have been demolished by 5 things.

    1. Obscene debt
    2. Frenzied oversupply
    3. Internet fast home delivery
    4. Collapse of GBP, due to Brexit hysteria
    5. Greedy local taxes and landlords

    • Paulo
      Jul 4, 2020 at 10:23 pm

      And, R2D2…people can eat better food at home or with friends, and save their money. That is, if people still have any cash left to save as things slow down.

    • char
      Jul 4, 2020 at 10:51 pm

      3. is bullshit. Home delivery does not compete with dining out.
      5. Landlords? It is more that PE restaurant chains wanted to grow and grow fast so they overbid the previous restaurants.

      But you forgot real reasons
      6, Increase in wages caused by government policy changes
      7. A much harder expansion outside England into the rest of the EU because of Brexit so less upside

    • Xabier
      Jul 5, 2020 at 6:51 am

      Generally, UK average-level restaurants have plunged in quality and quantity and yet become more expensive – the sector was due for a huge cull with or without COVID.

      One accepts small portions if the food has been prepared by a culinary genius and is impossible to cook at home -not so with the average offering.

      Add to that the rapidly decling prosperity per capita in the UK before the virus and lock-downs hit.

      • MC01
        Jul 5, 2020 at 8:18 am

        Last year I ate at two restaurants with a certified culinary genius in the kitchen and honestly you couldn’t tell the difference in portion size from any other place. I suspect the whole “small portion = genius cook” is nothing more than a cash grab like so many restaurant ranking systems.

        And to be honest in both places the bill came out much lower than in any pretend Italian or Texmex restaurant in London or Glasgow: I don’t know what’s wrong with Britain, but food and drink prices have been preposterous for at least two decades now.

        • char
          Jul 5, 2020 at 8:43 am

          Drink == Tax

          Could also be a cultural thing which makes restaurants more expensive to operate in the UK. For instance some countries have the reputations that their people all eat at the same time so you only get one customer per table per evening which would increase running costs a lot

        • MC01
          Jul 5, 2020 at 1:55 pm

          For most people “drink” means beer or wine, at very most cider or poiré. This stuff is not heavily taxed: it’s not exactly like drinking one bucket of rum per day.

          No, restaurants in Britain are just expensive and not particularly high quality: when Zürich has you beaten on both fronts, it’s time to pause and reflect.

        • MCH
          Jul 5, 2020 at 3:28 pm

          The main problem as certain British friends put it to me is that British food in and of itself sucks. The other also said that the best British food in Britain is Indian. Go figure.

          I am guessing the Brits realize their food sucks, so they’ve decided to make best of their human capital and go after international dishes. After all, what can you possibly do with bangers and mash.

  11. Beardawg
    Jul 4, 2020 at 6:58 pm

    Can someone explain how a company (restaurant chain, whatever) becomes “owned” by a PE firm which guts the company by creating unservicable debt ? If this is the known recipe/scheme, why would ANY company allow this type of ownership?

    • Jul 4, 2020 at 7:15 pm

      Beardawg,

      It’s called a leveraged buyout (LBO), much revered on Wall Street. Happened to retailers in the US in massive numbers – documented over the past three years by my “brick-and-mortar meltdown” series – that have now gone bankrupt or will soon go bankrupt. The Pandemic just compressed the future three years of this meltdown into six months.

      • char
        Jul 4, 2020 at 11:00 pm

        Not in this case.A few years ago it was all the rage under PE firms to start a sit down restaurant chain. So they bought a small chain and pumped it up gigantically or they (or a developer) created a chain. It was already clear before covid that those investments would unlikely be successful.

      • Xabier
        Jul 5, 2020 at 6:54 am

        Exactly, Wolf.

        With the lock-downs, politicians thought they were merely pressing the ‘Pause’ button, but in reality it has been ‘Fast Forward-Destruct’.

        And they think they can put this right with some vouchers for consumers……

        • char
          Jul 5, 2020 at 8:32 am

          Politicians did not implement the lock down. The people forced them. See how restaurants are not exactly doing great even when a lot of their competition is still closed. But American politicians killed the economy by “saving” it aka opening to soon.

      • Beardawg
        Jul 5, 2020 at 1:51 pm

        WOLF

        OK – I read your explanation and a few others on how a LBO works – kinda sickening really. That said, I am presuming it is the original investors / owners who seek out the LBO to cut their losses with a cheap sale? OR…are the original investors / owners sort of “in on the deal” because they are going to receive sale bonuses or some such thing due to the LBO? Related question…..don’t some LBO financier banks – even if they are beholden to PE firms, do a GAAP-type analysis and say this LBO just can’t be sustained ?

    • George W
      Jul 4, 2020 at 8:37 pm

      Mitt Romney, Senator from Utah should be able to provide you with the specifics of how such deals are carried out. Mitt worked for Bain & Company along with several other companies that specialized in these types of deals.

    • jeremy
      Jul 5, 2020 at 2:23 am

      This is one way that the economy has been financialized.
      The purpose now of the restaurant isn’t to feed people – it is to create and service leverage.
      This ‘leverage model’ has occured across all industries.
      And now that we have reached peak debt, the party is over,

  12. ewmayer
    Jul 4, 2020 at 7:56 pm

    I like to describe the business model of PE as “loot and scoot”.

    In any sane society such job-and-business-destroying pilfering would be treated like the fraud it is, but it’s been a long time since the countries permitting this sort of thing could fairly be characterized as sane in the societal-justice sense.

    • Javert Chip
      Jul 5, 2020 at 6:54 pm

      ewmayer

      The vast majority of companies taken by PE firms were in pretty desperate trouble before the PE deal (healthy companies have other ways to raise capital without dealing with loan-sharks); the vast majority (but not 100%) of these firms were headed for the bankruptcy scrap heap even before PE.

      The “crime” of PE is not in bankrupting failing companies (most fat no matter what), the “crime” is using the US banking system to generate a humongous loan to a knowingly very unsound borrower. Banks quickly sell that poor loan to MANAGERS WHO MANAGE OTHER PEOPLE’S MONEY (eg: pension funds). The bad loan pays a slightly higher rate for a small period of time, but when it predictably blows up, the beneficiaries of the pension fund take the loss. Note: the loss is NOT TAKEN by the PE firm, it’s NOT TAKEN by the bank, and it’s NOT TAKEN by MANAGERS WHO MANAGE OTHER PEOPLE’S MONEY

  13. raxadian
    Jul 4, 2020 at 9:04 pm

    Is always the same story.

    When times are good restaurants, bars and Cafes survive and may even make a profit. When they are bad they start to close down, the only difference this time is that this time people are not going out for a drink or a bite to avoid death, not necessarily because they do not have the money or are trying to save money.

  14. Sit23
    Jul 4, 2020 at 9:43 pm

    Just a thought. Why would any one in their right mind work for or eat at an American owned Italian, French, or South American themed restaurant in UK? I can remember when all “foreign ” food themed restaurants were owned and run by families from the countries whose cuisine was featured. When times are good they did well, and when times were bad the lowly or unpaid family kept it running. It did not occur to them to shovel all profits overseas and then throw the business under the bus and demand money from whatever government they were operating under. More of us should make a point of supporting locally owned and operated businesses, and ignoring foreign corporate industrial food outlets. Obvious common sense, which of course is why it doesn’t work that way.

    • Xabier
      Jul 5, 2020 at 6:57 am

      I can think of only a handful of such private/family businesses in this city: and, frankly, they too are over-priced due to high rents and can cook no better than I.

  15. DR DOOM
    Jul 4, 2020 at 11:00 pm

    PE firms should be drained and bankrupted to keep the doors open for the companies they infested as a non-contributory parasites . PE offer no economic value to society. They have flourished only because they get almost free money and are bailed out first by the CB’s. Jerome has made whole plus a premium for every PE firm that’s in the club holding shit bonds. PE is scum. At lot of people are just stupid. They attack statues. CB’s and PE and their government hand maidens should be their targets.

  16. jeremy
    Jul 5, 2020 at 2:17 am

    I emigrated to California from London and lived there for 20 years before returning to the UK.

    Unlike in the US, where eating out in a restaurant is usually affardable and comes with large portions and great service provided by eager staff who get well-tipped, the UK experience is usually one of overpriced, tiny portions and appalling service by amateur staff who often are cheated by their employers who steal their tips.
    UK restaurants deserve everything coming to them.

    • MC01
      Jul 5, 2020 at 4:06 am

      Your comment reminds me of that episode of Dad’s Army when Mainwaring, Wilson and Pike go for lunch in the town’s “British Restaurant” where they are met by an unappetizing menu and a rude unhygienic staff who takes particular delight in mistreating the mild-mannered Wilson. Absolutely hilarious.

      But I have to agree that eating out in London or even Glasgow is more expensive than in Zürich or Bern, which is quite an achievement in itself. I genuinely honestly don’t know where all that money goes: surely not in high quality ingredients nor in a well trained staff. And surely not even in fat profits: CDG has been flirting with bankruptcy for years now.
      I take these restaurant chains not only run the stores themselves instead of running franchises like Subway or leasing them out like Starbucks, but are also pretty incompetent at it.
      They probably overpay for everything from rents to tomato sauce, a common bane in the corporate world: when Airbus bought the CSeries (now A220) from Bombardier they were literally horrified to discover how much the Canadian conglomerate was paying for components, on average 20% more than what the Toulouse-based group pays for the same stuff.

      This is the same attitude as the British automotive industry after the war: they overpaid for everything and then expected customers to overpay in turn for the prestige of their brands. Reading books such as Bert Hopwood’s autobiography it’s very obvious these folks did not expect the unthinkable to happen: eventually they went broke.

      • Erle
        Jul 6, 2020 at 8:26 pm

        A big plus for mentioning Bert Hopwood’s book, “Whatever happened to the British Motorcycle Industry?”
        That one is still fun on re-reads.

    • Whatsthepoint
      Jul 5, 2020 at 10:02 am

      Agreed. A half decent dinner at one of the very few places we’d even consider, plus maybe a cheap bottle of wine = a week’s shopping!

  17. stan6565
    Jul 5, 2020 at 2:20 am

    Vaguely on topic.

    PE is also milking the British schooling. KKR is part owner of Cognita. Cognita pass themselves as top private schools chain, but scratch the surface and their delivery is mainly smoke and mirrors. As confirmed by online delivered summer term.

    Fast forward 10 or 20 years. People finishing schools uneducated. Nice.

  18. ML
    Jul 5, 2020 at 2:44 am

    Cafe Rouge went broke years ago. Surprise it still exists.
    Where PE goes wrong, in my opinion, is in attempting to replicate how the originator of the restaurant did it but without the know-how. Opening branches all over the place, equipped to a formula, only works if the business isn’t saddled with unsustainable costs.

    In England and Wales there is often a premium on the rental value of planning Use Class A3, A4, A5. That doesn’t help. Nor dies the tendency of big chains to take large units in primary positions.

    Not surprisingly the restaurant groups that do well are run by skilled operators with years of experience.

  19. ML
    Jul 5, 2020 at 4:01 am

    It is said that if you want a bad meal then go to a tourist restaurant.

    And for an overpriced bad meal go to a tourist restaurant with a view.

    • Petunia
      Jul 5, 2020 at 8:05 am

      Not necessarily true. Most of the restaurants on Ocean Drive in Miami were quite good, some excellent, but all were definitely overpriced.

    • Rosebud
      Jul 5, 2020 at 9:29 pm

      Yep. And the janitor, as it turns out, the most important employee, is living his vehicle.

  20. Raymonda Frump
    Jul 5, 2020 at 4:34 am

    Gastronomic success formula for chain restaurants: pull the prepackaged portion out of the freezer and stick it in the microwave. Works for everything on a 100-item menu from pork fried rice to pizza.

  21. historicus
    Jul 5, 2020 at 6:03 am

    Jay Powell, with his venture capital background, certainly feels their pain…and with the open purse of the American public, he certainly will ease their pain…..with other people’ money.

  22. Iapetus
    Jul 5, 2020 at 2:21 pm

    Excellent post Nick.

    I sometimes forget that Private Equity firms, and their investors, are the equity owners of all the world’s over-indebted non-public leveraged loan financed companies. And in this capacity they are first in line for losses when these over-indebted companies go bankrupt. A mass of bankruptcies among these companies is becoming increasingly likely, as Coronavirus related losses make it harder for them to service their excessive debts. If Private Equity firms bled enough special dividends, and fees, and transfers, and related-party asset sales out of all these companies to cover their original investment then they should be OK. If not……..

    • Ethan in NoVA
      Jul 5, 2020 at 6:40 pm

      They probably have it set up to be isolated so they took profits but investors take losses. Also they will have the capital to buy out corpses for pennies on the dollar and rinse/repeat.

      • Javert Chip
        Jul 5, 2020 at 7:01 pm

        BINGO!

  23. Gerrard White
    Jul 5, 2020 at 11:28 pm

    @Nick C

    ‘a once-in-a-lifetime tempest like the Pandemic’

    You are very optimistic

  24. Kasadour
    Jul 6, 2020 at 1:40 am

    LBOs, naked short selling, money printing, zero-bound interest rates, QE, et cet, all part of the ongoing massive wealth transfer to the itty bitty percenters.

  25. steve
    Jul 6, 2020 at 2:29 am

    Who eats at those nasty chains apart from tourists anyway? Reheated mass processed food made for the lowest possible price.

    No thanks, ill be down the local Indian or Italian, both being a chain of 1 producing fantastic food.

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