THE restaurant chain Living Ventures is facing a tough challenge. This summer the company almost doubled in size when it acquired the Restaurant Group’s flagging Est Est Est chain for £16.4m. It was part of a reciprocal deal in which the Restaurant Group bought a 40% stake in Living Ventures.
Now co-founders Tim Bacon, the group’s managing director, and Jeremy Roberts, Living Ventures’ commercial and finance director, have to make the acquisition work.
Many mergers or acquisitions that seemed a good idea on paper have foundered in reality. It is only after the deal has been signed that the difficulties become clear and the real work begins.
Until the summer, Living Ventures consisted of 14 outlets throughout Britain, including The Living Room, Prohibition and Bar and Grill chains.
Its outlets generate average weekly sales of £46,000, a respectable figure by industry standards. Profits last year were £6.2m on sales of £30m.
The plan is to open 10 more outlets and get group sales up to £86m by March 2008, but making this acquisition work is crucial if Bacon is to meet this target. Although he is not rebranding Est Est Est, Bacon has decided to overhaul the restaurants, transforming their look and revamping the kitchens, menus and the way staff work.
The original concept, created by Est Est Est’s founders, Derek and Edwina Lilley, worked well. Bacon is trying to recreate the success the couple enjoyed by bringing in a development team of food and restaurant experts from Tuscany. He plans to spend between £400,000 and £500,000 refitting each of the 20 restaurants.
Progress has been encouraging. Like-for-like sales at Est Est Est have stabilised after an 18% drop the previous year under the old owners. Bacon said that at outlets already refurbished, like-for-like sales were up 267%.
But Bacon still needs to ensure that the absorption of the chain into the Living Ventures group goes smoothly, and does not change or dilute his successful way of working.
He said: “All our growth in the past has been achieved organically, so we are moving into new territory here. Our biggest issue is people. We employ about 1,800 now. When you are bringing in 700 to 800 of those from another company, you have to get them all to think in the same way you do. That’s a complicated process.
“It’s important that we align the cultures of the two chains. At Living Ventures we have a great culture, so we are bloody-minded about protecting it. There are all sorts of issues we have to deal with in this area.
“For example, of the staff we have taken on, there are the managers who are interested only in the business and accounting side of things and those who care only about the operational side. But we need both sets of skills. If we can get this right, we don’t need to worry about anything else going wrong.”
Bacon already takes staff matters seriously. About 10% of the launch budget for an outlet goes on staff training, enabling him, for example, to offer managers three to six months of training on full salary.
Even so, recruiting able staff is proving difficult, and existing Est Est Est employees must learn to adapt to the Living Ventures way of doing things.
“The big question is how to protect the culture you have and let it spread, while preventing the culture of the business you have acquired from affecting your own,” he said.
Graham Turner, chief executive of Tragus Group, which owns several restaurant brands, including Café Rouge and Bella Italia, agreed that it was hard to get cultural issues right during an acquisition.
“Getting the most from the new staff is the most difficult challenge,” he said. “The danger is that those you are taking on just see you as another group of people coming in who are going to do things differently but not necessarily better.
“If staff aren’t told that things can be done better and why, it will affect the whole business, from the quality of the food to customer service. It’s about creating some excitement among them. If they know the business is going to get more attention and more capital investment and that it is in a growth phase, they are going to be more involved.
“Having a good integration team, including some good people from the business you have acquired is important, but it is also vital to listen to your staff.”
Jim Surguy, managing director of Results Business Consulting, which specialises in mergers and acquisitions, also said that Bacon was right to focus on people as the most important element of the group.
“Above all, getting this right is down to communication,” he said. “If staff don’t know what’s going on, they will gossip and morale will plummet. Tim has to promote his vision for the chain hard and quickly so people understand what he is doing. They have to understand the benefits of the merger for the business and themselves.”
If any redundancies are needed, they should be made swiftly, said Surguy.
“You have to get to grips with these matters quickly after a merger because small problems become running sores if you leave them too long.”
