by Real Business - Thursday, 30th August 2007

Company: Patisserie Valerie
Sector: Restaurants
Deal: Sold to private equity for £8.25m, then bought back 20 per cent

My brothers and I put Patisserie Valerie up for sale because we were split on where to take the business next. Enzo, my older brother, is very strong-willed – the word “dictator” springs to mind – and his views differed to mine and those of my twin, Robert (pictured right). At 57, and with nearly 20 years in the business, Enzo felt ready to move on. But Robert and I thought Patisserie Valerie could achieve a lot more.

The three of us bought the business in 1987 from a couple who were planning a new venture: a wine bar next to Lloyds of London to be exact. They had been focusing on the project and had allowed standards to slip.

It was based in Soho, which at the time was very bohemian, full of writers and artists. We saw huge potential in the higher-end cake and coffee market. So we bought the shop for £325,000, taking a third share each, and set about restoring it.

Back then, no one had heard of Starbucks, and patisseries were a niche market. But we quickly became popular and our shop was always full. Even so, we decided to expand slowly, using working capital where possible to fund the purchase and development of new outlets.

The latest was in December last year. We purchased our first City-based outfit of 7,000 sq ft, with a patisserie, ice-cream parlour, brasserie, 60-seater café and takeaway service over three floors. It also doubles as a production hub.

With ten outlets, including two run under license, 175 staff, £8m turnover and £1m profits, Enzo decided now was a good time to sell. It was the second time he had left the business; the first being when he demerged and sold our Brompton Road shop and took a year out for personal reasons.

This time it was for good, however, and he wanted to sell his entire stake. We approached Davis Coffer Lyons, a deal broker specialising in leisure sector businesses. And we discovered that no one was prepared to buy the business without retaining our expertise.

Soon we were introduced to Luke Johnson’s private equity group Risk Capital Partners (RCP). We immediately clicked and were encouraged by the fact that Johnson loved Patisserie Valerie as a customer as well as an investor.

We were also impressed by RCP’s understanding of the business. Many of our customers were worried the sale would destroy what our family business stood for. RCP went to great pains to allay these fears.

We agreed the deal: Enzo would exit while Robert and I would each retain a ten per cent stake and become salaried board directors in the new organisation. There’s no earn-out or three-year exit plan; we have the option to sell our shares, but we’re in it for the long run.

The deal was for £8.25m, and our fees whittled that figure down by £1.1m. We also had two minor shareholders, which meant we walked away with just over £6m to split three ways. Robert and I then reinvested £612,000 to pay for our 20 per cent share.

I was given the task (and I do mean task) of being our point-man for the due diligence process. That meant daily calls and emails and a constant scramble to locate this or that piece of information from our lawyers, accountants and insurers.

We’ve always tried to keep costs down, so we had no secretaries or book keepers. We didn’t even have an FD. It meant information was all over the place. If we ever do this again, we’ll make sure the facts and figures are better organised! That’s just the kind of place Patisserie Valerie has always been, though: no hierarchy. All three brothers working as equals.

We each had our own flagship shop, and we didn’t have influence over each others’ shops. We were almost a group of individuals connected by a theme, rather than a proper company, and it had worked up to a point. But this deal has opened our eyes to the potential of Patisserie Valerie, how we can expand and improve it in a more crafted and more profitable way. We’ll be coming to our first board meeting with grander goals. In that respect, RCP has helped us no end.

Interview by Dan Matthews

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