Compass pays pounds 227m for French catering group

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The Independent Online
Compass, the UK's largest caterer, has closed the gap on France's two biggest catering groups, including its arch-rival Sodexho, by paying pounds 227.1m for a 93 per cent stake in SHRM. The acquisition of the French food group also gives Compass a foothold in two new markets, Canada and Australia

But while Compass has been able to secure one sizeable purchase it has virtually given up hope of buying its primary target, France's largest catering group Generale de Restauration (GDR). Compass is selling its 11.2 per cent stake in GDR just six months after acquiring it.

"We originally took a seat at the table to influence what happened at GDR. But its fate has been determined by its management. They wanted to maintain its independence and our strategy has had to change," said Roger Matthews, managing director of Compass. It still has first right of refusal to buy the business for the next three years but it looks increasingly likely it will not come up for sale.

The disposal price is not being disclosed, although Mr Matthews said that Compass stood to make a "good profit" on the stake, which was originally bought for just over pounds 8m.

SHRM made a profit of pounds 17m on sales of pounds 436m last year. Mr Matthews is confident that he will be able to increase operating margins at the business from the current 4 per cent to the 5 per cent level enjoyed by the rest of Compass's continental European businesses.

"The market is consolidating quickly. The main advantage will be the economies available from increased purchasing power," said Jean Jacques Vironda, an analyst at SGST brokers. SHRM is also a good fit with Compass's existing businesses in the burgeoning healthcare and educational contract catering markets.

Compass has embarked on a big spending spree over the last few years which has led to it becoming the largest catering group in the world alongside Sodexho. The acquisition of SHRM follows hot on the heels of its purchase of US food group Daka for pounds 120m last month. Last year it established a strong presence in the French catering market with the pounds 124m acquisition of the 66 per cent stake in Eurest France it did not already own.

The spending is far from over but the number of large targets available is diminishing and Compass may be forced to make smaller purchases in future.

The latest deal received a mixed review from analysts and Compass's shares fell 15p to 702p. "This is a decent purchase but at around 19 times historical earnings this is hardly a hugely cheap deal," said one analyst.

Another was worried that Compass was guilty of buying too much too quickly: "It has spent a lot of money in the last few years, seeming to buy everything that moved. Now it has to prove it can start getting decent returns from these businesses."

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