Restaurant floats are the dish of the day, but beware burnt fingers

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The Independent Online

Forget foie-gras flatbreads and pomegranate daiquiris – the newest fad on the British restaurant scene is the initial public offering (IPO).

A number of popular dining chains are eyeing stock market listings, but tricky market conditions and weak investor appetite have already started to throw them off course.

Among would-be market listers are Gaucho Grill, the Argentinian steak house, and Tragus, owner of Café Rouge and Strada. Fresh-food chain EAT also looks set to join the stampede heading cap in hand to the City.

At a time when Britain is ranked in the top three countries in the world for fine dining, and London is considered a gastronomic capital, UK households are spending more on eating out than on meals at home – and canny restaurateurs have flourished.

Yet share prices in quoted restaurant stocks have fallen since July and financial markets are still suffering reverberations from the global credit crunch, so it's a questionable time to float.

Wagamama, the Japanese noodle chain, became the first to pull plans – for a £200m float – last week. The company, controlled by private equity firm Lion Capital, is understood to have received approaches from other private equity houses offering more than an IPO was expected to raise. City institutions reportedly balked at the £200m tag, despite the Wagamama's plans to increase outlets in the UK from 51 to 150 and in the US from two to 350.

The decision does not help Gaucho Grill, which is about to embark on an investor roadshow ahead of a listing.

City experts say market conditions and the "phase in the business cycle" of the companies are behind Phoenix Equity Partners (a 45 per cent investor in Gaucho Grill) and Blackstone, Tragus's backer, seeking an exit.

One sector analyst said: "You've got to wonder whether the private equity owners are sensing a decline in consumer demand and possible further hikes to food costs, and deciding to get out now. Consumer spending is flattening big time."

Although a decision over a potential £500m float of Tragus is not expected until early next year, it has been singled out as the most likely to whet the appetites of institutional investors. "This is exactly what Britain needs right now: a great big giant ... to consolidate some of the others," said one analyst.

In the meantime, Blackstone is on the list of suitors for Wagamama, along with TDR Capital, former owner of Pizza Express.

Richard Caring, the billionaire owner of The Ivy, has also been tipped as a potential bidder. He sold the Strada chain to Blackstone for £140m in June.

"The main players in this sector are still privately owned, which means the synergies are in the private sector. That's why the private equity buyers can afford to pay more," said an analyst.

Stephen Gee may disagree. The non-executive chairman of Gaucho Grill is also chairman of Carluccio's and has seen the Italian group's share price climb 60 per cent since its stock market debut in December 2005.

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