The traditional pub - Bucking the trend
Peter Constantine, Cardiff Managing Director and Avison Young Principal looks at how the licensed leisure market is faring
Despite all of the doom and gloom surrounding the UK with Brexit dominating the domestic agenda and an imminent General Election, there is one sector of the economy that has continued to see much activity – the traditional pub.
There has been much publicity over the last 18 months about the turbulent trading conditions experienced by casual dining chains suffering from a combination of declining sales, highly rented retail premises and the rise of home delivery platforms such as Uber Eats, Just Eat and Deliveroo with a number of high profile casualties such as Jamie’s Italian and many other operators closing large numbers of outlets in CVA’s and other restructuring exercises.
Conversely traditional pubs and restaurants have reported more positive sales numbers with many national pub operators reporting positive like for like sale figures over the last six months which suggests that consumers are still frequenting pubs and targeting their discretionary spend in this direction demonstrating the resilience of the pub sector.
This summer has seen the two largest UK pub companies taken over with a Hong Kong based privately owned Company, CKA, acquiring Greene King for £2.7bn (excluding debt) or £1m for each of their 2,700 pubs , hotels and restaurants and the private equity owned Stonegate acquiring Ei Group with 4,000 pubs in a £3bn deal.
The motivation behind the deals appears to be that the sector is considered to be stable having resilient characteristics coupled with strong cash flow generating capabilities. In addition the majority of both of these substantial portfolios comprised mainly freehold assets which have underpinned the deals. In the Stonegate case it also provides TDR private equity with critical mass in terms of sheer size and quality and therefore provides a potential exit route in the future via an IPO.
These deals highlight the continued interest in the sector and make it highly possible for there to be further consolidation, with established operators such as Stonegate and well-funded overseas investors such as CKA, being examples of the types of buyers that could execute further significant deals. There are many others who could also fuel further activity with the likes of Marstons and M&B being touted as potential targets.
A number of regional brewer / pub companies, very often still family owned, may also receive interest from acquisitive buyers and who might find it difficult to resist the temptation to sell.
Looking ahead it seems likely that there will continue to be M&A activity throughout the sector so those watch this space.
