Pret a Manger’s star rises with potential 2016 float: Reuters

(Reuters) — Its name means “ready to eat” but the lip-smacking question for investors is whether British sandwich chain Pret a Manger is ready to go public.

The retailer’s private equity owner Bridgepoint is looking to ramp up overseas profits before selling out, and is considering a U.S. listing as one option, a private equity source close to the matter said.

Pret a Manger, known for fancy sandwiches such as wild crayfish & rocket and beech-smoked BLT, has already seen interest from potential bidders, the source said. And several banking, legal and sector analyst sources said the chain, nicknamed Pret, was well positioned to attempt a 2016 listing.

A galaxy of Pret stores with their distinctive star logos have spread across Britain, the United States and Asia. After years of losses the U.S. business is now profitable, the private equity source, who spoke on condition of anonymity, said.

That could pave the way for a listing in the United States, where a deeper pool of investors could pay Bridgepoint a higher price, and where there are more similar companies who have successfully floated than in Pret’s home market.

“The U.S. values restaurant concepts differently,” the private equity source said. “It’s a much more receptive market.”

U.S. peers including Shake Shack Inc (SHAK.N) and Chipotle Mexican Grill Inc (CMG.N) are trading at an average enterprise value to core earnings (EBITDA) multiple of 16.9 times, against 9.5 times for British firms like the Restaurant Group (RTN.L).

Pret had core earnings of 76 million pounds ($117 million) in 2014, according to its website. A U.S. listing at those multiples would value it at 1.28 billion pounds – over half a billion more than at a UK multiple.

Bridgepoint, the London-based owner of clothing retailer Fat Face and Wiggle bicycles, paid 345 million pounds for a 53 percent share in Pret in 2008. It currently owns 65 percent after buying out Goldman Sachs (GS.N), which advised it on the acquisition. Pret’s management and founders own 35 percent.
Private equity firms generally invest for four to six years, but Bridgepoint says it is in no rush to sell.

Pret’s core earnings rose 14 percent in 2014. In 2013 it raised a 375 million pound loan to refinance existing debt and pay a 150 million pound dividend to owners.

“We said at the time of the refinancing in 2013 that we would extend our holding period for Pret … no decision has been taken about the type or timing of exit,” Bridgepoint partner and spokesman James Murray said in an emailed statement.


Like-for-like sales across the 374-strong branch network swelled 9.7 percent to 594 million pounds last year, underscoring the likely appeal to investors.

Cracking the States is key to the success of any listing, especially as the British business matures, analysts say.

“Pret’s cash generation is all in the UK, but the growth opportunity is all in America,” one private equity banker said.

But no British restaurant chain has ever listed across the Atlantic. And Pret itself says it has “continued to grow cautiously” since opening in 1986.

Before Bridgepoint, Pret sold a 33 percent stake to McDonald’s (MCD.N) in an effort to accelerate expansion, although many saw the chain, and signature products such as its “posh cheddar and pickle” artisan baguette and lentil and quinoa soup, as incompatible with the home of the Big Mac.

Overambitious openings in the United States and Japan also burned the company.

McDonald’s eventually sold its stake and Pret is taking a slower approach. Last year it opened its first store in Shanghai and seven more in the United States, where it now has 60 stores, including in investor hotspots Boston and New York, as well as San Francisco, Chicago and Washington.

That puts it in line with Shake Shack, which was valued at nearly $2 billion in its January IPO, giving each of its 63 restaurants a value of $27 million.

“We’re caught up in a frenzy where established restaurant chains with good brands are sought after,” said Bob Goldin, Executive Vice President at U.S. restaurant consulting firm Technomic. “The British ownership would be fine if they decide to go via a U.S. route.”

Pret faces considerable competition in the United States but strong growth potential too in such a vast market. There are expected to be 157,481 U.S. quick service restaurants by the end of 2015, according to Statista. Top player McDonald’s (MCD.N) raked in $5.96 billion in revenue in the last quarter alone.
Others said Pret would better suit a UK listing or sale.

“The challenges are massive because there are subtle social differences,” said Anna Barnfather, analyst at Panmure Gordon.

Five bankers said Pret remains an attractive proposition for private equity or trade buyers, perhaps even from Asia.

With 10 percent annual growth seen for the casual dining market in Britain over the next five years, according to management consultancy BDO, potential returns have captured investors’ attention.

Last year Beijing-based Hony Capital bought Cinven’s [CINV.UL] Pizza Express for about 900 million pounds – a record purchase by an Asian private equity fund for a British company, according to Thomson Reuters data.

Last month, BC Partners [BCPRT.UL] bought Britain’s Cote restaurants, while Apollo’s Casual Dining Group closed in on Spanish restaurant chain La Tasca – less than a fortnight after buying Latin American-themed eaterie Las Iguanas.

“The UK is an incubator for casual dining brands now,” said Harry Stoakes, director at BDO and advisor on the Las Iguanas sale. “It’s a huge growth market, so there are lots of investors out there.”