Patisserie Valerie’s new owner has insisted it has the money and skill to rebuild the company despite sacking the café chain’s top management to save money just days into a buyout from administrators.
Causeway Capital, a Dublin-based private equity firm backed by Irish state and EU investment funds, bought Patisserie Valerie in mid-February after a period of turmoil triggered by the discovery of accounting irregularities in October.
Matt Scaife, a partner at Causeway, told the Financial Times that 96 cafés were trading profitably from day one of the deal, after the administrator closed 76 unprofitable outlets. But he added that the fund was ready to invest more in the business, which has about £50m in revenues, to boost profits and growth.
“We have an amount ringfenced for additional follow-on investment into Patisserie Valerie,” Mr Scaife said.
He brushed off questions about Causeway’s plans raised by Steve Francis, a turnround specialist who was dismissed last week as Patisserie Valerie’s chief executive and is now taking legal action against the firm.
Mr Francis claimed that Causeway planned only a brief period of ownership and appeared to want to reduce planned investment in the business. He also said that he and another executive, Rhys Iley, were dismissed without recompense to save money, even though they were due to inject more than £1m of equity into the business.
“Our participation was a key factor in them winning the bid,” said Mr Francis, adding that he and Mr Scaife had spent time discussing strategy, incentive plans and other details before his abrupt dismissal. “Questions have to be asked about having a firm like this investing in a company like Patisserie Valerie,” he said.
But Mr Scaife said that Causeway was committed to Patisserie Valerie and that it would not have invested “if we didn’t think there were sensible risk-adjusted returns to be made” in the medium term.
The group aims for Patisserie Valerie to be “materially profitable” by the end of the year, he added, and “generating sufficient cash to be able to reinvest back into the business”.
In response to Mr Scaife’s claims, he said: “I used to play rugby league when I was younger. I’m used to dealing with a few headshots but it is a shame that it’s played out in the press in the way that it has.”
On Monday, Causeway appointed food and drink veteran Paolo Peretti as managing director of Patisserie Valerie’s retail business, in effect replacing Mr Iley. “Two weeks in, we’re where we need to be,” Mr Scaife said.
“We think we’ve got finance, food production and the food service retail side of the business covered in terms of expertise and with a healthy dose of restructuring experience there, as well as business-building.”
Paul Keenan, a Dublin financier who knows Causeway’s backers, said the Patisserie Valerie challenge suited the firm.
“They’re not just your classic private equity people,” said Mr Keenan, who is executive chairman of Capnua Corporate Finance.
“I’d say they’re turnround, operational hands-on people.”
Causeway’s business model involves buying stakes of €2.5m to €10m in established Irish and UK small- and medium-sized companies. The €50.5m fund is backed to the tune of €15m by the Ireland Strategic Investment Fund, a sovereign fund managed by the Irish national debt office, and by €5m from Allied Irish Banks, the lender that is 70 per cent owned by the Irish state.
Isif said that UK investments do not violate its remit to support economic activity in Ireland, although Causeway is required to deploy €25m in Irish companies.
Causeway also has €20m from the European investment Fund, a specialist EU provider of risk finance that is part of the European Investment Bank. Mr Scaife said that Britain’s looming departure from the EU did not prevent Causeway from deploying European funds in a UK business.
The 36-year-old Mr Scaife was previously chief financial officer of Helix Health, a software business that was bought for €40m by Clanwilliam Group in 2014. He and his wife control a UK-registered partnership that provides business services to Causeway.
David Raethorne, Helix’s founder, is another partner at Causeway, which was established in 2015.
The firm does not disclose its performance but said that six of its seven investments were profitable, while the seventh was an early-stage business.
Mr Scaife said that Causeway was the right owner for Patisserie Valerie because it already had experience in cafés through its stake in BB’s Bakers + Baristas, a UK and Irish coffee chain.
Causeway also has a background in company turnrounds, having bought Celtic Linen, an Irish specialist laundry service, from an insolvency process in 2016.
“Clearly [Patisserie Valerie] is a more high-profile investment than some of our others so it has probably a little more emphasis on it,” said Mr Scaife but he added that “we can’t afford for any of our investments not to perform”.
The fund believes there is “huge value” in Patisserie Valerie, he said. “We can also see that there’s a huge amount of value in the estate of stores: it would take a huge amount of time to secure those locations and investment scale to open them.
“I think the third bit is the value of the proposition that is a fresh pâtisserie business where all of the cakes are made freshly each day by Patisserie Valerie’s own skilled staff in its own kitchens and bakeries, which is unusual for a business of that size.”