Summer is cancelled as leisure and food sector feels credit crunch chill

The EAT sandwich chain, Prezzo pizza restaurants and games supplier HB Leisure are among those forced to rethink their strategies
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The husband and wife duo Niall and Faith MacArthur, the founders of the lunchtime food chain EAT, are set to miss out on a £75m bonanza following the decision to scrap the proposed sale of the 92-shop group.

In a disastrous summer for the leisure and food sector, it is also believed that the proposed management buyout of the pizza chain Prezzo could fail, while the amusement arcade chain HB Leisure has abandoned a sale of a stake in its business.

Leon, the London chain of healthy fast-food restaurants is also rumoured to be struggling, though it continues to expand.

The abandonment of the sale of EAT comes months after the group, part owned by the private equity firm Penta Capital, was put up for sale with a price tag of £120m-£150m, following a review by its adviser PricewaterhouseCoopers.

But sources close to the group said: "It just doesn't make any sense to sell a business like EAT at the moment. The valuations are just two low. That's not to say it won't be sold in the future when things recover."

Meanwhile the proposed management buyout of Prezzo, the AIM-listed pizza chain, news of which first surfaced at the start of May, is also thought to be in trouble.

A spokesman for Prezzo said: "They [management] have not said anything further from their May statement and therefore you have to conclude that they are still exploring it."

HB Leisure, which provides slot machines, including those on which children can win toys, to such attractions as Thorpe Park and Blackpool Pleasure Beach, has shelved plans to sell off a stake in the business. It hired PricewaterhouseCoopers to try to secure private equity investment; its executive chairman, Tim Batstone, had hoped to use an equity injection of up to £25m to grow the business.

However, a source close to HB Leisure confirmed speculation that this plan had been "put on hold" over the summer as a result of the credit crunch.

The source added: "HB will wait until market conditions are more appropriate for private equity. The company is still expanding, just not quite as rapidly as it would have done with private equity funding."

Commenting on the summer travails for the sector, Richard Grainger, executive vice-chairman at the investment bank Close Brothers, said: "You have to question why owners of consumer businesses, such as restaurant and gaming chains, would sell in this market if they don't have to. If there is a fundamental misalignment between buyer and seller value expectations, it's inevitable there will be more busted auctions than usual."

The CBI last week reported that retailers had had their worst month for nearly 25 years in July. The next major test for the sector comes at the end of September when many retailers have to pay their third-quarter rents.

"The management of many of these firms have their heads in the sand," said a City restructuring expert. "If they get through September's rent, then they'll be pinning their hopes on a good Christmas. We could see a real spike in failures in the first quarter of the new year because Christmas isn't going to be pretty."