Domini Kemp is sitting with Brian Montague in a sunlit corner of The Commons Café, located beneath the Museum of Literature of Ireland. Kemp and her sister Peaches are behind the café, and it is an oasis in the heart of the city. Beautiful wrought iron doors lead to a well-tended garden centred around a tree that James Joyce stood beside when he graduated from UCD back in 1902.

Sipping coffees, Kemp and Montague are reading a 34-page booklet detailing plans for their new business, Valence Hospitality. Valence is raising a €20 million Hospitality Acquisition Fund (HAF) to acquire in the region of 20 restaurants by 2026, with Kemp and Montague providing the first €1.25 million. 

They then intend to raise €11.75 million from investors who buy into their vision for a new food-led hospitality group. The remaining €6.1 million of the €20 million will come from working capital generated by the group. The plan is to retain bespoke individual brands, but to benefit from operational, managerial, purchasing and back office synergies.

Kemp is full-time chief executive of the business, having stepped back from the ITSA Food Group, which runs cafes, restaurants and concessions including Hatch & Sons, Feast Catering, and The Commons Café. She will remain a shareholder in the business, but her sister will now run the Group.

Montague, chairman of the Winding Stair group of five bespoke restaurants, will now become executive chair of Valence. “I’m a portfolio investor so I don’t work in any of my businesses full time, but I’m not going to do any new things for the next three years as this is my focus with Domini.”

Kemp and Montague have ambitious plans for their new business with a pipeline of nine deals under consideration. Ultimately, the group hopes to employ between 350 and 400 people.

So just how the new fund will work, what its strategy is, and what it return to investors? Plus, having worked at the coalface of the industry, what are the views of Kemp and Montague on the future of the Irish hospitality industry in a post Covid world?

Lessons from the past

Domini Kemp is embedded in the food business. She is an award-winning chef, entrepreneur, event organiser, cookbook writer, food journalist and television presenter. She is also a social campaigner who has developed an entrepreneur programme with Wheatfield prison. She is immediately recognisable.

Belfast-born Montague has a much lower profile but is well known in business circles as a former executive in Eircom and as ex-chief executive of law firm A&L Goodbody. His restaurant chain includes The Winding Stair, The Woollen Mills, The Legal Eagle and The Washerwoman.

The pair met in the back of a bus on a bumpy eight-day trip with Uganda with the charity Self Help Africa. “We’d never met each other before that trip a few years ago despite being in the same industry,” Montague said.

“That’s when we became friends. We talked about business a lot, but we’d not considered working together until lockdown.”

After they came back from Uganda, Kemp said Montague had helped her devise an entrepreneurship programme for prisoners that led to a television series called Prison Breaks, about rehabilitation for offenders. “Brian has been a great mentor,” she said. “He is a very good person to bounce things off.”

“And vice versa,” Montague laughs,” when March 2020 came, I was calling Domini and asking her what she was doing about suppliers, VAT warehousing and so on… we were tick-tacking quite a bit in lockdown, learning how to use Zoom. It was a pretty miserable time to be in the sector.”

Both Kemp and Montague had weathered the previous financial crash and recession; this was different. “We thought it would be six months. We didn’t think it would be two years,” Montague said.

In winter 2020, Kemp and Montague met for a coffee, and started to talk about for the first time what they could do together. They began to think about the last crash, and the lessons they had learned over the past decade.

“I built my business out of the last recession,” said Montague, who entered the hospitality industry in 2010 when he bought the Winding Stair restaurant and bookshop. “We started to talk and think there is an opportunity to build a new business out of this disruption.”

Kemp added: “What has always interested me about Brian is that he came into the restaurant industry fresh. He hasn’t worked his way through the industry, so he has such a different approach.”

Kemp could see that Montague was fascinated with the financial and operational side of the business, complementing her own ability her experience of 20 years in the hospitality industry.

“I don’t work in my restaurants directly,” Montague said. “I do have a real sentiment for it but ultimately the thing that interests me is the business model. I don’t have the food and service skills that Domini has. The plan is that I concentrate on the finance and operational stuff, while Domini focuses on creating wonderful products. Her reputation goes in front of her.”

In the years after the last recession, Kemp said the ITSA Group had doubled in size. However, she acknowledged it had been a tough period, as the recession dragged on for years. “I thought about the aftermath of this period, and whether there would be another sluggish painful period,” she said. “We talked about what if we went back in time to the last recession, what would we have done differently. That inspired us to think about the potential of now – and what the potential landscape in the future will be like.”

Valence Hospitality was born. It started to come together in June 2021 with the assistance of advisor Karl Cleere, the founder of Solara Corporate Finance. “The plan, like our existing businesses, is to have individual bespoke restaurants, but they will be part of a very, very tight group structure,” Montague said.

“Our industry is so disparate – everyone has a bookkeeper, an HR person and so on. The model we are aiming for has a big focus on back-office capability. We think that the economics of scale and synergies will produce a five or six per cent margin advantage, which is pretty significant in our industry.”

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Page 10 of Valence Hospitality’s information memorandum states: “The Covid pandemic has brought unprecedented disruption to the hospitality sector and many previously successful businesses in the industry will struggle to survive.”

There is also a frank assessment of what the withdrawal of government subsidies will mean for a hospitality business stretched to its limit by the last two years.

“We have a lot of operators who are emotionally and physically fatigued by the last two years,” Kemp said. “They are thinking, ‘do I want to close shop or do I want to continue?’”

Valence hopes to offer some of these restaurant owners an exit by bringing in new capital from its fund as well as enhanced margins from being part of a well-run bigger group. Kemp and Montague said their preference was to buy businesses outright, but they would consider joint ventures on the condition that Valence had at least 51 per cent control.

“Based on the traction in our current pipeline, we are mostly doing full buyout, but we are in discussions with one operator about a joint venture,” Montague said. “When I came into the industry in 2010, I saw many brilliant chefs, people who were great in the kitchen and at customer service but who weren’t necessarily also fantastic at corporate finance and dealing with landlords.

“Nothing exposes problems like a bump in the road. That’s what happened in 2010 and that’s what happening now. The hospitality sector is notoriously bad at cash management, but we can bring that discipline.”

Kemp added: “People tend to keep their heads in the sand and so problems escalate. We are two years down the road of government supports but that is going to run out, and suddenly we are going to find a lot of people thinking, ‘what are they going to do’.”

Montague said some of the issues facing restaurants could be solved by fresh capital and corporate finance expertise, but that restaurants didn’t have access to this. “The hour has come for what we want to do,” he said.

The founders of Valence are clear about what types of businesses they want to work with. They have ruled out coffee shops and burger chains, and say they want to acquire food led quality hospitality businesses. “We want good quality casual dining places that are city-based as that is what we know best,” Montague said. “Not necessarily Dublin, but locations outside Dublin would have to have at least 10 months of business a year.”

So, no summer holiday spots like say Dingle? “No, Dingle,” Montague replies.

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Investor funds going into the HAF will come in as loan notes at 8 per cent interest. The €11.7 million of investor loan notes equates to about 45 per cent of the equity. Investors can also choose to invest directly as equity. A typical investment might be €500,000 but Valence will take in smaller investments.

“As an investor, the thing to inspect is the robustness of our business model, are they happy with the return, and what are our assumptions,” Montague said.

“We have very conservative projections and margins,” Kemp said. “We know for example wages will be frothy for the next little while, so we have taken that into consideration.”

Montague said the experience of its team should also help reassure prospective investors. “We have a reasonable track record. We are grown-ups,” he said.

When the interview ends, Montague and Kemp are scheduled to visit the 10th property in their pipeline. They’ve been cautious however and are waiting to sign-up their first set of deals. “We have a pipeline of about eight or nine and we will convert three of those this year,” Montague said. Kemp said Valence would retain brands if they were respected and suited to their locations. “We want to be respectful towards existing businesses where appropriate,” she said.

Montague said he didn’t rebrand The Winding Stair restaurant, for example. “I felt if it ain’t broke, don’t fix it,” he said.

However, he said Pravda, a large pub nearby, was different he said. So, after buying it from the Thomas Read Group, he rebranded it as Grand Social before selling it three years ago.

Montague said there was a number of options for investors in terms of an exit. “It would be naive of us given the nature of the Irish market to think that someone will just buy 20 restaurants off us in five years’ time,” Montague said. “In the Irish market, it has never happened for this type of bespoke group.”

One option he said for an exit would be a bank refinancing, but another would be to make the business large enough that it would be attractive to bigger buyers seeking cash-generating opportunities. “At the moment this is a family office and high net worth play. But when this business is worth say €40 million in 2027 it makes us more attractive to a new investor base.”

Montague said Valence expected to keep on many of the staff of restaurants it acquires. “Domini has worked in that model for over 15 years,” he said.

Kemp said she expected the business would employ about 400 people when it reaches 20 venues and will include some existing well-known restaurants. “We want to save quality restaurants and also save quality jobs. I know if I was selling the Winding Stair, I would want to know that it would continue,” Montague added. “People thinking of exiting want a reasonable price in a distressed market, but they also want to know their legacy is intact and respected and acknowledged.”