Bars will rise again – I’m investing £6m to buy into a boom
Former Dragons’ Den star tells of golden opportunity in battered hospitality sector
DRAGONS’ Den entrepreneur Sarah Willingham has four children dotted around the house doing lessons on their iPads and laptops during our interview, but she’s surprisingly relaxed about home-schooling. When her youngest child, Marly, was five, she took her whole family out of school for a year to travel the world, from Patagonia to Guatemala. Their only formal education was a term at a circus school by the beach at Byron Bay in Australia. ‘They learnt about the ocean, sea safety and the wilderness,’ she says. ‘Long term, their education hasn’t suffered in any way. It is the single best decision I’ve made in my life.’
The year out gave Willingham time for the adrenaline to leave her system and to spend more time with her children while they were growing up, following a relentless two decades building up a multimillion-pound business group.
By the age of 35, she had already bought the Bombay Bicycle Club and built it up from a handful of sites to the largest chain of Indian restaurants in the UK. In 2008, it was sold for seven figures to co-investor Clapham House Group, led by former Pizza Express chief executive David Page, earning her a seat on two series of the BBC’s Dragons’ Den.
But Willingham’s adrenaline has kicked in again over the pandemic – despite having to hold board meetings from her bedroom at home in Brighton during lockdown.
Over the past few months, she’s raised £6million for her new hospitality investment firm, Nightcap
Plc, which she floated last week on the Stock Exchange’s junior AIM market to help battered hospitality businesses survive and expand after the Covid crisis.
Its first acquisition is bar group The London Cocktail Club, which Willingham had already invested in alongside celebrity chef Raymond Blanc. Since the float, backed by retail investors, Nightcap’s shares are up 38 per cent to 13.79p.
Now Willingham has a ‘wish-list’ of other small and mid-size bar chains she would like to buy and help expand. Willingham won’t name names yet but she says the overall strategy is to become the ‘go-to’ fund for premium bar groups with potential to expand.
‘We only floated last week, so the phone has only just started ringing,’ she says. ‘But I’m expecting that a possible acquisition will be part of a private equity company restructuring for one of their portfolio companies.
‘If private equity firms are carrying heavily indebted businesses that need restructuring and they don’t want to expose themselves further by putting more money in, then we are a good solution for that. We can come in with equity to help fundamentally sound businesses restructure.’
Willingham is one of a growing number of hospitality entrepreneurs banking on a boom in customer demand for pubs, bars and restaurants once Covid vaccines have been widely rolled out and social distancing restrictions start to ease. Last week, it emerged that Rooney Anand, the former chief executive of pub operator Greene King, has raised £200 million to buy a string of pubs through his Redcat Pub Company investment firm.
On the same day, Wetherspoons founder Tim Martin announced he has earmarked a share of a major fundraise to buy up more pubs while property prices are cheap (see below). And restaurateur Page and Hugh Osmond, who jointly led the huge roll-out of Pizza Express during the 1990s recession, are snapping up cut-price sites to expand their Franco Manca and Coppa Club chains.
Willingham read the runes last summer, after having a ‘lightbulb moment’ while talking to her husband and business partner, Michael. She says she realised the market conditions over the next three to five years will be ‘a once in a lifetime opportunity’ to recapitalise fundamentally great businesses where debts have skyrocketed due to Covid and help them grow. In contrast to the historical model of private equity firms buying pubs and restaurants by loading them up with debt, the new financing model will be about injecting equity to reduce debt and restructure balance sheets. The financing will be largely raised through private investment or floating on the stock market via an initial public offering (IPO).
She says: ‘For the first time in over a decade, I was very excited about that public market space again. Michael and I have done IPOs before and we said, it’s the same model. Let’s go out, raise equity and be ready in 2021 for the businesses that do need to restructure their balance sheet.
‘I think private equity firms will have to fundamentally change the way they invest in our sector in order to be successful. This strong debt focus, this high leverage, is not going to work for investments over the next two or three years.’
Another force reshaping the hospitality industry is the shift of power from landlords to tenants, as property firms can no longer charge sky-high rents due to the collapse in demand with so many chains shrinking. The London Cocktail Club, which is aiming to expand
‘This is a once in a lifetime chance’ ‘I hope Covid will lead to fairer leases’
from ten to 40 sites ‘as quickly as possible’, is being offered a pipeline of premium sites they could never have afforded pre-Covid.
Citing one example, Willingham says a vacant site in Kensington, West London, has scrapped its usual £150,000 premium, knocked 30 per cent off the rent and thrown in a year rent-free.
She says: ‘There are some really good deals. I hope this is a really positive outcome of Covid, that lease negotiations become fairer and more balanced – so there are no super profit yields on one side, and businesses being crippled on the other side.’
She adds that some landlords have been ‘diabolical’ in her lease negotiations for The London Cocktail Club, which has bars in Central London and Bristol. ‘I have renegotiated all the rents myself – and it has shocked me how some of them have behaved,’ she says. ‘The guy that owns two little sites, it’s his pension, he’s great – absolutely brilliant. But the big companies are saying no, I’m not budging.’
She adds: ‘I’m thinking, “I’m opening loads of sites over the next five years. But I’m never going to sign another lease with you.”’