Deal us in for another round

It is no longer a matter of ‘if’ but ‘when’ another big deal in the pub sector is signed off. People have finally stopped asking "when will it all end?" when they read the details of the latest big pub acquisition. Most now accept that mergers and acquisitions have become an everyday part of the pub market. Since June £2 billion has changed hands through major pub chain transactions. It demonstrates a considerable amount of faith in the investment potential of pubs, even if operational sentiment can be a little shaky. Despite speculation that the high street will be the new prime target for consolidation, most activity has continued to be focused on the community pub arena. Nevertheless, the latest deals have added considerable impetus to the ambitions of some emerging power players in the market, most notably the country’s two leading regional brewers Greene King and Wolverhampton & Dudley and one of the sector’s dark horses, Scottish & Newcastle Pub Enterprises. No, S&N didn’t sell all its pub interests a year ago. Pub Enterprises, a specialist manager of tenanted and leased estates not interested in ownership, is profiting from the growth of financial players in the pub property market. Its latest deal will see it run the 364 sites that property tycoon Robert Tchenguiz has just acquired from Spirit. Pub Enterprises now looks after 1,500 pubs for various clients, and is the third biggest leased pub operator after the two giants, Enterprise and Punch. Will we see more specialist portfolio mangers in the leased as well as the managed sectors? Yes, probably. It is a model that already works well in the hotel market and property ownership is increasingly split from operations. Meanwhile, both Greene King and W&D continue to build their presence in both the managed and leased markets. In terms of sites, GK and W&D are just behind S&N in the leased sector and GK is now the number three in the managed arena, with 775 sites, behind the big two Mitchells & Butlers and Spirit. Consolidation continues to make sense in the largely unbranded community pub market, where overhead and operating efficiencies can more easily be found. The challenge here is to maintain entrepreneurial flair and innovation within growing bureaucracies. Perhaps, as their empires grow, GK and W&D will take a look at the type of joint ventures that Mitchells & Butlers is currently working on with a handful of entrepreneurs that have spurned exciting new initiatives such as the Orange Pub Co chain of new generation pub restaurants? Partnering the market muscle of the big boys, or aspiring big boys, with the flair and enthusiasm of ambitious and well-motivated entrepreneurs would seem to be a model that the pub sector could and should exploit. So what of the high street and branded pubs? Robert Tchenguiz’s move on Laurel’s high street estate has for the time being scuppered the ambitions of GI Partner’s, new owner of Yates Group, to lead high street chain amalgamation. But that surely is only a temporary delay. There is much logic in a move to bring together a bunch of branded operations under one umbrella, cutting out costly head office overheads. Why not have Yates, Walkabout, Slug & Lettuce, even a La Tasca under a single ownership? The question is how best to profitably grow those concepts? Is it by carefully selecting the right sites one-by-one or by converting tranches of existing estates? M&B, for example, has successfully used brands to leverage the maximum returns from individual sites within its portfolio, which works well in the freehold-based suburban market. But there is always the suspicion that concepts such as All Bar One would do even better if the focus was on maximising brand rather than property potential. Again, the answer on the high street might come back to a new partnership between specialist brand retailers and property investors. The interest in Laurel suggests that the high street, as well as the community market, will see more action soon. Where will the next deal come from? A high street player? A regional brewer or pubco? Who expected the Burtonwood deal? The interest will not just be in the deals, but their after affects and the new opportunities they will throw up, not least in the one certain mega-deal of 2005 – the float of Spirit Group.