Associated Hosts Hires Firm to Aid Sale
After hunting for a buyer for more than a year, Associated Hosts Inc. of Beverly Hills, which owns and operates the successful Bombay Bicycle Club restaurant chain among other hotel and restaurant operations, has hired Montgomery Securities, a San Francisco investment banking firm, to speed up the sale.
The move comes more than a year after K mart pulled out of an agreement to pay an estimated $80 million for the 40-year-old company, which has 76 restaurants and three hotels in 26 states.
Although officials would not say with whom the company has negotiated since then, analysts say the eventual buyer will probably be a restaurant company that has not yet entered the so-called fern-and-finger-food end of the industry. Senior executives at Associated Hosts would not comment on the reason for the new impetus to sell.
But analysts said executives are eager to sell while business is still relatively good at its popular Bombay Bicycle Club restaurants, despite increased competition and a recent softening in the industry.
Also, while the 5-year-old Bombay Bicycle Club chain has relied heavily on liquor sales for as much as 40% of revenue at some restaurants, liquor sales in the restaurant industry have generally taken a nose-dive nationwide, said Howard Schlossberg, an editor at Restaurants & Institutions magazine. “Some restaurants are converting bar space into food space,” he said.
Net income at Associated Hosts fell more than 36% during the second fiscal quarter ended March 28 to $721,000 from $1.13 million in the year-ago quarter. Sales fell to $22.9 million from $24.4 million in the quarter a year earlier. But those results are in line with much of the restaurant industry, in which business has been generally down all year.
Despite the second-quarter results, the Bombay Bicycle Club chain--modeled directly after the popular TGI Friday’s chain--has been an overwhelming success. And that caught Associated Hosts’ management off guard, analysts said. The company’s sales jumped nearly 20% in 1984, compared to 1983, even though it did not add a single new unit.
But at 79, Joseph Bulasky, Associated Hosts’ founder and chief executive who owns half of the company’s 4.5 million outstanding shares, is not eager to undertake a major growth project, analysts said.
Instead of building new projects, the company has poured millions into converting nearly 40 eateries, including many of its own Smuggler’s Inns restaurants, into Bombay Bicycle Clubs over the past few years.
Each conversion has cost the company an estimated $200,000, a company spokesman said. With most of the logical conversions completed, however, the company must now grow by more costly measures such as building new outlets or acquisitions, analysts said. “It’s becoming too big a nut for them to crack,” said David S. Leibowitz, senior vice president at American Securities Corp. in New York.
