The Restaurant Group is paying £7.7 million for a 40 per cent stake in bar operator Living Ventures, with an option to buy the remaining shares in 2008.

The deal also involves the group - which owns chains including Caffe Uno, Frankie & Benny's and Garfunkels - selling its 19-strong Est Est Est chain to Living Ventures for £16.4 million.

Additionally, the Restaurant Group will acquire for cash preference shares in Living Ventures for £2.2 million, redeemable in full in three years' time. The acquired shares include the 30 per cent stake owned by funds managed by Bowmark Capital.

As part of the deal, the Restaurant Group has also been granted a call option to purchase the remaining 60 per cent of Living Ventures in 2008 and, if not exercised, a separate option to buy back Est Est Est, its upmarket Italian restaurant brand.

In the year to the end of March 2004, Living Ventures - which owns the Living Room on Broad Street - generated operating profit of £600,000 on sales of £19.5 million.

Meanwhile, the Restaurant Group revealed last month a 28 per cent rise in 2004 underlying profit, beating market expectations.

It said profit before tax and exceptional items had climbed to £ 24 . 7 million from £19.25 million in 2003.

Joanne Ellis, from the Birmingham office of law firm Pinsent Masons, advised Living Ventures as lead partner on the Restaurant Group deal.