The largest Pizza Hut franchisee in the UK has commenced discussions with potential purchasers as it strives to counteract the impending effects of tax increases revealed in last month’s Budget.
Sky News understands that Heart With Smart (HWS), which manages approximately 140 Pizza Hut dine-in establishments, has engaged advisors to locate a buyer or to secure tens of millions of pounds in outside capital.
Sources in the City reported this weekend that the initiative, overseen by Interpath Advisory, began in recent days and is anticipated to culminate in a transaction within the forthcoming months.
HWS, previously known as Pizza Hut Restaurants, employs around 3,000 individuals, making it one of the prominent players in Britain’s casual dining sector.
The company is jointly owned by Pricoa and its management team, spearheaded by CEO Jens Hofma.
In 2018, they executed a management buyout reportedly valued at £100 million, succeeding a period in which the company was owned by Rutland Partners, a private equity firm.
One insider indicated that in addition to the negotiations with external entities, there remains a possibility that a financing arrangement could be established with its current investors.
HWS holds a license for the Pizza Hut brand from Yum! Brands, the American food conglomerate that also owns KFC.
Sources suggested that the increases in the national living wage and employers’ national insurance contributions unveiled by Rachel Reeves would potentially augment HWS’s annual expenses by around £4 million — equivalent to over half of last year’s earnings before interest, tax, depreciation, and amortization.
Additionally, it was noted that the operation of Pizza Hut restaurants requires further funding to alleviate the Budget’s repercussions and to ensure the business maintains a sustainable fiscal standing.
The potential implications of failing to secure a buyer or fresh investment remained uncertain as of Saturday, though the initiation of this process coincides with increasingly dire warnings from various sectors of the hospitality industry.
Stay updated with all the latest news from the UK and across the globe by following Sky News
Last weekend, Sky News disclosed that a letter organized by the industry association UK Hospitality and signed by numerous industry leaders, including Mr. Hofma, notified the Chancellor that, unless addressed, the proposed tax increases in her Budget would lead to layoffs and business failures within a year.
The letter also mentioned that the capacity for pubs and restaurants to offset the tax increases through higher prices was restricted due to diminished consumer purchasing power.
This was followed by a comparable letter drafted by the British Retail Consortium this week, which likewise cautioned against escalating unemployment across the sector, emphasizing the Budget’s negative repercussions on vast segments of the UK economy.
Even prior to the Budget, hospitality operators faced intense pressure, exemplified by TGI Fridays entering administration before its acquisition by a consortium consisting of Breal Capital and Calveton.
Sky News recently reported that Pizza Express had retained investment bankers for consultation on refinancing its debt.
HWS is responsible for all Pizza Hut’s dine-in outlets in the UK but does not engage with its extensive network of delivery locations, which are operated by independent franchisees.
Documents submitted to Companies House for HWS covering the period from 5 December 2022 to 3 December 2023 illustrate that the company finalized a debt restructuring agreement that allows its lenders to defer repayments on certain loans until November of next year.
The conditions for these facilities were also extended to September 2027, and the firm entered into a new 10-year franchise agreement with Yum Brands that will remain in effect until 2032.
“While market conditions have improved significantly since 2022, consumers continue to face challenges from extraordinary levels of inflation, elevated mortgage expenses, and sluggish economic growth,” the accounts stated.
It continued: “Business expenses remain a challenging aspect.”
Pizza Hut opened its inaugural UK restaurant in the early 1970s and experienced swift growth in the subsequent 15 years.
In 2020, the company announced it would be shutting down numerous restaurants, resulting in the loss of hundreds of jobs, via a company voluntary arrangement (CVA).
At that time, it operated more than 240 sites throughout the UK.
Mr. Hofma and Interpath both opted not to provide comment.
