Hony Capital acquires PizzaExpress

September 2014 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

Chinese private equity (PE) firm Hony Capital Ltd agreed a deal in mid July to acquire UK based pizza restaurant chain PizzaExpress for $1.54bn. The deal for PizzaExpress is Hony’s largest overseas deal to date. According to a joint statement, once completed the deal will be the largest in the European restaurant sector in the last five years.

Cinven, the European PE firm which owns the PizzaExpress brand, first began to explore the possibility of selling the business in 2013. The firm investigated the possibility of divesting the entire Gondola Group, the parent company that owns the pizza chain and a number of other restaurant assets, including Zizzi. However, Cinven opted instead to sell off the Gondola assets individually as the firm felt that it would struggle to sell the entire business to a private buyer. As a result, in 2013 the group sold the Byron Hamburgers brand for around £100m to Hutton Collins Partners. Cinven acquired the Gondola Group in December 2006 for around £900m, with £290m supplied from Cinven’s fourth fund and a £610m debt package provided by the Bank of Scotland. Following the completion of the PizzaExpress deal, Cinven will begin to explore the potential sales of its two remaining casual dining brands, Zizzi and Ask Italian.

The acquisition of PizzaExpress by Hony, a subsidiary of computer manufacturer Lenovo Group, is the latest in a series of acquisitions of global brands by Chinese firms. PizzaExpress has around 400 locations in the UK but has been looking to increase its international standing for some time. The company generated revenues of £369.4m in 2013, as well as earnings before interest, taxes, depreciation and amortisation of £90m. PizzaExpress currently operates in 14 different countries and has 22 locations in China. The group, which employs more than 9000 workers, is hopeful that the sale to Hony will help to increase the visibility of the PizzaExpress brand, particularly in Asia. In a statement announcing the deal Richard Hodgson, chief executive of PizzaExpress, said: “Asia is a key part of our future growth strategy and Hony’s expertise in this region will be invaluable. We are looking forward to working with them on this as well as our ambitious UK growth plans.” Mr Hodgson will retain his position once the Hony acquisition has been completed, with his existing management structure remaining intact.

Since its first overseas acquisition in 2008, Hony has been steadily increasing its holdings outside of China. Currently the firm, which is one of China’s largest PE firms, has assets worth approximately $7bn across seven different funds. Historically, Hony Capital has been a China focused middle market firm, which has been backed by Legend Holdings, however of late the group has begun to look overseas for investment opportunities. Indeed, by acquiring the PizzaExpress brand, Hony has become one of an exclusive group of private Chinese investment firms that has purchased an overseas consumer asset for more than a billion dollars with an eye toward further developing the asset domestically. According to Hony’s chief executive John Zhao, the firm now considers overseas acquisitions to be one of the driving forces behind its overall business strategy and growth development. “China, in the last 20, 30 years, being busy becoming the world’s factory, has not done enough to produce brands, technology, service that could satisfy domestic requirements,” he said. “We like to acquire and invest in these global brands, bring them to China and build growing businesses.”

How Hony and PizzaExpress market the brand in the Chinese market will be crucial to the success of the venture. PizzaExpress pizzas cost approximately $20 per person in China, significantly more than the average $4.80 Chinese customers typically spend at a pizzeria.

Richard Summerfield