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RCP exceeds 8x return on Giraffe sale to Tesco

14 Mar 2013

giraffe_africa_170sqRisk Capital Partners has made a massive return of more than eight times on its investment in restaurant chain Giraffe, which was sold to Tesco for £48.6m yesterday.

The London-based firm sold its 20 per cent stake nine years after initially investing in the business.

3i, which bought a minority stake from the company founders for £10m in 2006, said it made a 1.6 times money multiple selling its 36.8 per cent interest.

Giraffe undertook an ambitious expansion programme under RCP’s ownership, boosting the number of sites from seven to almost 50.

Risk Capital founder Ben Redmond, who was heavily involved in the development of Giraffe, told AltAssets that investing at the right stage of the company’s growth curve was key to realising such an impressive return.

He said, “We structured it as a development capital deal so we put our money into the company and never took any money out, and the company used that cash to expand.

“When we invested in the business, it was small. We rolled out sites and tried to contain central costs. And when you add sites, you don’t have to add the same proportion of central costs, so economies of scale lead to rising net margins in the business.”

Redmond, whose firm still holds Giraffe peers Patisserie Valerie and Gail’s in the portfolio, also pointed out that casual dining chains have hardly been impacted by the credit crunch, which adds to their appeal to potential buyers.

He said, “Casual dining has remained, I would say, remarkably resilient through the recession and that’s why there is significant investor appetite – look at the interest in Cote and Byron.”

According to Redmond, buyers such as Tesco believe they can further expand casual dining chains by adding a significant number of new sites to their own estate.

The investment in Giraffe was made before Risk raised its £75m fund in 2009. Redmond refused to disclose how much of the fund has so far been invested, but said the firm plans to make up to six investments of between £3m and £15m from the fund.

He also told AltAssets the firm currently has no plans to raise a new fund.

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