EG Group, the petrol station business whose billionaire founders have pushed for rapid growth through debt-fuelled acquisitions, has bought healthy fast-food chain Leon for £100m as it expands into food retailing.
Mohsin and Zuber Issa said the deal to acquire pandemic-hit Leon offered “fantastic opportunities” to build out the network, including drive-through sites.
The £100m sale price, including debt, values the business at about 20 times its UK arm’s earnings before interest, tax, depreciation and amortisation, according to three people familiar with the transaction.
Founded in 2004 by John Vincent, Henry Dimbleby and Allegra McEvedy, Leon tapped in to demand for healthier, affordable fast-food, growing to a total of 70 restaurants and franchises, mainly based in the south-east of England.
The deal will bring together the clean-living Leon chain, whose menu ranges from vegan burgers to gluten-free chicken nuggets, with a portfolio of other fast-food brands operated by the EG Group. The Blackburn-based company last year acquired the largest KFC franchise operator in the UK and Ireland, and runs Greggs and Subway stores from its petrol station sites.
EG Group’s owners, private equity firm TDR Capital and the Issa brothers, agreed last year to buy supermarket chain Asda in a £6.8bn deal, using an intricate series of debt deals and selling off some of Asda’s assets to fund the purchase.
The brothers and TDR have used debt-funded acquisitions to build EG Group into a petrol stations empire spanning Europe, Australia and the US with revenues of $25bn a year.
However, EG faced difficulties last autumn when Deloitte resigned as its auditor over governance concerns. It has since appointed retail veteran Sir Stuart Rose as non-executive chair.
The Leon group generated sales of about £115m in 2019, running losses to fund its expansion within the UK and overseas before the pandemic paralysed its growth plans.
Chief executive Vincent acknowledged the sale was a “sad day” for him, but described the Issa brothers as “decent, hard-working business people” who would be “superb custodians” of the Leon brand.
Vincent was approached by the Issa brothers for the Leon group, which is co-owned by Spice Private Equity and its longtime backer Active Partners. Rothschild advised Leon on the deal.
Vincent will sell his 15 per cent stake in Leon and leave the business.
“I am exiting completely but will support the company in any way I can,” he told the Financial Times. “It was such a difficult decision. I was all set to spend the next five years building up after Covid, taking advantage of real estate opportunities. But the Asda owners wanted a food brand to put in their forecourts and gas stations.”
EG’s unaudited results showed its like-for-like revenues fell almost a quarter in the year to December 2020, a period when lockdowns reduced footfall and fuel sales on its premises. EG said its food services business accounted for 46 per cent of its gross profit in the UK and Ireland last year.
The acquisition could raise doubts over Leon’s exclusive arrangement to supply groceries and ready meals to the grocer J Sainsbury, a rival to the Issa-brothers owned Asda group.
Source: Financial Times
