News Column

Analysts wary as debt-laden food outlets company comes to market: SSP launches into choppy waters for private equity Swann sees expansion at 'sexy' travel terminals

June 18, 2014

Sarah Butler

A London company which runs 2,000 branded food and drink outlets at airports and railway stations around the world is heading to the London stock market with a pounds 1.5bn price tag.

SSP, which owns 300 brands including Upper Crust and Caffe Ritazza, and also runs Marks & Spencer outlets at travel terminals, yesterday laid out plans for a float that will raise pounds 500m.

The company, which does two-thirds of its business overseas, is led by Kate Swann, a former head of WH Smith. The private equity-owned business will use the cash raised to pay down loans but will still have about pounds 450m of net debt.

The company recently revealed a sales rise of 9% in the Asian and Pacific region in the six months to March, despite a big fall in its business in Thailand as travellers avoided the country during the recent military coup.

Revenue in the US rose more than 25% as SSP opened more upmarket bespoke eateries based on local restaurants, such as Shake Shack at JFK in New York.

Margins also improved as SSP closed its headquarters in Weybridge and combined it with an existing office in London.

Swann, who is famously reserved, joined SSP last autumn. Yesterday she said: "I was at a public company for 10 years - it will be like coming home. I don't particularly like being in the public eye, but I'm fine about public markets."

Swann is likely to be an attraction to investors who benefited from her skills in squeezing years of rising profits from WH Smith despite the chain being widely written off as a high-street basket case when she arrived.

But analysts said investors would be wary of another debt-laden, private equity-backed business arriving on a London stock market crowded by a string of recent retail IPOs. SSP's debts, not including store leases, will be the equivalent of nearly three times underlying earnings when it joins the market next month.

"People might be a bit nervous about the elevated level of debt," said Tony Shiret, an analyst at Espirito Santo, "But I would expect Swann to make some money for investors over the long term."

Several private equity-backed companies have endured a rough ride on the stock market in the past few months

Bridgepoint-backed Fat Face pulled its plans for an initial public offering after running into investor apathy, while Elliot Advisers' Game Digital was forced to lower its price range.

Shares in KKR's Pets at Home continue to trade below the float price and Poundland has struggled to top its launch valuation of 300p a share.

Swann said investors should look beyond the ups and downs of the stock market and see that SSP had plenty of room to expand. Air and rail passenger numbers were expected to rise by 4.4% and 2.6% a year over the next 20 years.

"We have got an opportunity to add space and we have got a diversified set of geographies with many opportunities to grow," she said.

Although SSP is not exposed to the fashionable, fast-growing online retail or discount sectors, where IPOs such as AO World, B&M and Poundland, have attracted heady valuations, Swann said: "People absolutely think travel is a sexy sector, one that everybody is excited about because of its long-term trends for growth."

The Swedish private equity firm EQT, which bought SSP from Compass in 2006 in a pounds 1.3bn deal, owns 94% of the company and is expected to stay a majority shareholder. The management team, including Swann, own a stake worth less than 5%. Exactly how much money either group plans to cash out will not be clear until SSP's prospectus is published next week.


One of SSP's brands, Upper Crust, at Euston station, London. The firm hopes to ride the expansion in travel over the next 20 years Photograph: David Parry/Newscast

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Source: Guardian (UK)

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