What happened behind the scenes at Gaucho to secure its future

When the high-end Argentine-themed Gaucho restaurants fell on tough times in summer 2018, their future, plus the jobs of more than 700 people, looked in doubt.

Owned by private equity firm Equistone, the Gaucho group operated two separate entities: its 16 premium Gaucho steakhouses and casual dining chain CAU. The first was successful but CAU, set up in 2011 to offer a flavour of Buenos Aires, was losing money and cross-guarantees to landlords meant the ripples were felt by Gaucho. In July 2018, the group was facing insolvency.

When Deloitte was appointed as administrator, the challenge was threefold: close the unsustainable CAU chain, restructure the group’s head office and sell Gaucho to protect the legacy brand.

Links in the supply chain

With an opportunity for Gaucho to remain a going concern, a Deloitte team was set up to keep the restaurants operating.

“When a company faces insolvency, the suppliers are usually put on hold. However, you can’t do that with a restaurant chain because there isn’t a warehouse full of stock,” explained Restructuring Services Director Laurence Morgan.

“We had to call suppliers and get them on board. And we had to resolve it immediately as we couldn’t risk a dip in quality.” Employee turnover was another issue as, inevitably, some people chose to move on.

“We were faced with the additional challenge of having to hire staff while in administration to ensure operational stability,” added manager Tsvi Lewis.

While the supply chain was taken care of, the business itself had to be stabilised and restructured, ready for a new buyer. It was also important to manage the vacated CAU leasehold estate, getting as much value from it as possible.

Once everything was in place, our Special Situations M&A team, led by Ben Hughes, ran an accelerated sale to secure a buyer.

A new future

When an investor was found for Gaucho, it presented another challenge. The team needed to clean the Gaucho business of the CAU lease guarantees so the sale could go ahead. They proposed a Company Voluntary Arrangement (CVA) – a process normally used to help organisations avoid administration – which has to be approved by creditors.

Under the arrangement, landlords would get what they were owed while others would receive less, although still more than the alternative if Gaucho folded. The CVA was backed by 99 per cent of creditors.

In October, the chain was bought by South African bank Investec and Hong Kong fund SC Lowy. It had been a high-pressure situation – and often difficult work – in the media’s glare, but the rescue had gone to plan.

“We kept the brand alive, protected livelihoods and the supply chain behind Gaucho and avoided more empty units on the high street, which wouldn’t have been good for anyone,” said Laurence.

Tsvi concluded, “This process brought together people from across Deloitte, as well as blue-chip clients. It was a demonstration of what we can do as a firm.”