Pizza Hut’s largest UK franchisee has started contacting potential bidders as it works to mitigate the looming impact of tax rises announced in last month’s Budget.
Sky News has learned that Heart With Smart (HWS), which operates around 140 Pizza Hut restaurants, has asked its advisers to find a buyer or raise tens of millions of pounds in external funding.
Municipal sources indicated this weekend that the process, managed by Interpath Advisory, began in recent days and should result in a transaction in the coming months.
HWS, formerly Pizza Hut Restaurants, employs around 3,000 people, making it one of the largest businesses in Britain’s casual dining sector.
It is owned by both Pricoa and the company’s management, led by Managing Director Jens Hofma.
They led a management buyout worth £100m in 2018, with the business previously owned by Rutland Partners, a private equity firm.
One source suggested that in addition to discussions with external third parties, it remained possible that a funding solution could be found with its existing backers.
HWS licenses the Pizza Hut name to Yum! Brands, the American food giant which also owns KFC.
Insiders have suggested that increases to the National Living Wage and Employer National Insurance Contributions (NIC) unveiled by Rachel Reeves would add around £4 million to HWS’s annual costs – the equivalent of more than half of Last year’s earnings before interest, taxes, depreciation and amortization. .
One added that Pizza Hut restaurant operations needed additional funds to soften the impact of the budget and put the company on a sustainable financial footing.
The consequences of failing to find a buyer or new investment were unclear Saturday, although the emergence of this process comes amid increasingly dire warnings from across the hospitality sector .
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Last weekend, Sky News revealed that a letter co-ordinated by trade body UK Hospitality and signed by a host of industry leaders – including Mr Hofma – told the chancellor that if left unaddressed, her budget tax rises would result in losses of jobs and business closures within a year.
It also said the ability for pubs and restaurants to pass on tax rises in the form of higher prices was limited due to consumers’ lower spending power.
This was followed by a similar letter this week from the British Retail Consortium, which also warned of rising unemployment in the industry, highlighting the fiscal backlash of swathes of the UK economy.
Even before the budget, hotel operators were feeling significant pressure, with TGI Fridays collapsing into administration before being sold to a consortium of Breal Capital and Calveton.
Sky News recently revealed that Pizza Express had hired investment bankers to advise them on a debt refinancing.
HWS operates all Pizza Hut restaurants in Britain, but has no stake in its many delivery outlets, which are run by individual franchisees.
Accounts filed with Companies House for HWS4 for the period from December 5, 2022 to December 3, 2023 show that it has completed a debt restructuring under which its lenders have agreed to suspend repayments on some of its borrowings until ‘in November next year.
The terms of the same facilities have also been extended until September 2027, while a new 10-year Pizza Hut franchise agreement with Yum Brands has also been signed, which expires in 2032.
“Even though market conditions have improved significantly since 2022, consumers continue to face above-average levels of inflation, high mortgage costs and slow growth in the economy,” the accounts said.
He adds: “Business costs remain challenging. »
Pizza Hut opened its first restaurant in the UK in the early 1970s and expanded rapidly over the next 15 years.
In 2020, the company announced it was closing dozens of restaurants, resulting in the loss of hundreds of jobs, through a Company Voluntary Arrangement (CVA).
At that time it operated more than 240 sites across the UK.
Mr. Hofma and Interpath both declined to comment.