Giraffe: A case study in the benefits of Private Equity

NOTE: This post is more than 12 months old, and the information contained within may no longer be accurate.

3i announced today the completion of another successful Private Equity deal. One of the giants of the retail sector, Tesco, has purchased the relatively young restaurant brand Giraffe.

In 2006, Giraffe had 11 outlets, when 3i, the Private Equity house bought in. Their plan was clear – to:

…deliver 8-10 new openings per year and target high street locations as well as new retail/leisure developments.  New restaurants will open in the Trafford Centre, Manchester…

They’ve been successful in that and today completed a deal where Tesco purchase their 36% stake representing a 1.6x multiple on the original investment. As it happens, that’s not a particularly great return on investment, as whilst we’ve had a credit crunch in between, this actually equates to a 7.5% per annum gain!

Tesco’s obviously sees a great strategic importance in Giraffe, paying around 12x EBITDA (based on 11/12 year figures). One of the obvious benefits for Tesco is they could (potentially) replace the often tired looking café’s with the much funkier, and family friendly food that Giraffe offer.

The Joffe’s (Russel and Julliett) look set to net around £26m, but notably, as they’re being retained by Tesco (whilst not disclosed in the press release) will probably see a significant proportion of this on ‘earn out’ terms. The master stroke for them was undoubtedly using the PE firm to give them the reach and scale to get to where they are now.

Whether or not this money will secure all they wish for in life is another matter, they’ll likely become every Private Bankers best friend (for now) at least! But for a business that is a little over a decade and half old, they’ve done tremendously well, and, not least as my children both love to eat there, I wish them all the best for the future!

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