Facing away from Mecca: Michael Guthrie has learned the dangers of debt. Jason Nisse reports

WHEN it comes to venture capital, Michael Guthrie has seen it all before. In 1985 he led the pounds 95m buyout of Mecca Leisure - which owned bingo halls, discotheques and holiday centres - from Grand Metropolitan.

At the time it was one of the biggest buyouts ever completed. And when, 10 months later, the company was floated on the stock market through the issue of about a third of its shares, the offer was more than 11 times subscribed.

The cult of the buyout as a way to make vast amounts of money was born and Mecca was on the launch pad to a brief career as a 1980's go-go share. And like many go-go shares, it followed the Grand Old Duke of York path of investment, storming to the top of the hill only to tumble down the other side.

Following the success of its audacious hostile pounds 750m bid for Pleasurama in 1988, Mecca was unable to sell some of the businesses it wanted to get rid of and in 1990 it fell to a pounds 490m offer from Rank Organisation. Mr Guthrie, who had fallen ill in the latter stages of the bid, found himself out of a job.

But within a few months he was back. Mercury Asset Management, which backed the original Mecca buyout, asked Mr Guthrie if he was willing to lead a management buy- in of leisure assets. Thus Brightreasons was formed.

The fund managers set Mr Guthrie and his team up in an office while they identified an acquisition. Ironically the deal was to come via the same route through which Mr Guthrie had originally come to prominence.

Grand Met was finding that it was making little headway with its Pizzaland chain of restaurants. The chain was established in the 1960s and is still seen by many as the leading brand name in pizza restaurants, despite heavy competition from Whitbread/Pepsico's Pizza Hut, City Centre Restaurants' Deep Pan Pizza and, in the south of England, Pizza Express.

With money not only from MAM but also Morgan Grenfell and Montagu Private Equity, as well as loans from Samuel Montagu, Brightreasons bought Pizzaland and a smaller chain, Pastificio, in February 1991 for around pounds 20m.

It soon set about turning the chain around. 'Pizzaland had been neglected and had been overtaken by other chains,' Mr Guthrie said. 'We reshaped the range and the product offering and increased the marketing.' He also rebranded the Pastificio chain as Bella Pasta.

In February 1993 Brightreasons was able to augment the restaurant chain when it bought the Prima Pasta, Pizza Piazza and Sweeney Todd restaurants from Rank Organisation for pounds 21m. These had been part of Mecca before Rank took it over. The chains had been largely developed when Mecca owned them, so Mr Guthrie knew them well.

Mr Guthrie decided that some of these brands were a little over the hill. After a bit of chopping and changing, the Brightreasons portfolio now boasts three brands - 108 Pizzaland outlets, which have been positioned slightly above Pizza Hut and Deep Pan in the market, 30 Bella Pasta restaurants, which make up the largest pasta chain in the country, and 19 Pizza Piazza outlets, which are set in towns around the M25, and are positioned as a rival to Pizza Express and run by someone formerly at Pizza Express.

The restaurants are thriving despite the recession and Mr Guthrie is on the look-out for other purchases to augment the chain. His backers have said they are prepared to put up extra finance, although if he were to make a large move he might have to look to the stock market for fresh money.

Much nearer to a market flotation is Mr Guthrie's other business. His service agreement with Brightreasons allowed him to have another project in the leisure industry. In December 1991 he found it.

When at Grand Met, Mr Guthrie had worked on the establishment of its motorway service stations operation. He opened one - Trowell on the M1 with its distinctive Robin Hood theme - but Grand Met decided not to go forward and sold the service station to Granada.

Mr Guthrie approached Rank to see if it would sell its motorway services business. When Michael Gifford, Rank's bluff chief executive, agreed, Mr Guthrie offered MAM the chance to back this business. It declined but Candover came in. For the pounds 95m deal, CINVen and Montagu Private Equity also provided finance while the bank debt was led by Bank of Scotland.

The new company, originally called Brightreasons II but soon renamed Pavillion Group Services, ended up with eight motorway service stations and three large service centres on trunk roads.

Mr Guthrie's team has rebranded the sites, cleaned them up, added branded food outlets such as Pizzaland and Burger King and increased the facilities for truck drivers and business travellers. All in all it has earmarked pounds 12m for refurbishments and improvements to the services.

He is now looking to expand the business, although this is difficult because any expansion needs large investment, as a service station costs more than pounds 20m to build from scratch. He is cagey about prospects for expansion, as they are in the hands of bodies that he cannot control, namely the Department of Transport or other motorway service station owners like Granada or Blue Boar, the private, Jersey-based group that owns Watford Gap services on the M1. The prospects, however, are looking up, with the DoT keen to promote the building of new service stations, particularly on motorways that are not well served, such as the M40 or M11.

However, the cost of any expansion would mean that Pavillion would look outside for new finance, and a market float would be quite likely, although when this would take place is in the lap of the gods.

One area in which Mr Guthrie is keen to stick close to his roots is management. Three former Mecca directors work with him - Jeremy Long, Mecca's finance director, who is managing director of Pavillion, Mike Ludbrook, who ran Mecca's entertainment side and is managing director of Brightreasons, and Ian Baker, Mecca's legal director, who is Pavillion's commercial director.

In the trade Brightreasons and Pavillion are known as 'Mecca II'. But this time it looks like Mr Guthrie has learned the lesson of taking on too much debt.

(Photographs omitted)