It was the deal that needed to be done – and in the end was completed remarkably swiftly and smoothly.
Mitchells & Butlers’ acquisition of 239 prime pub restaurant sites from Whitbread was agreed on Thursday. As the Champagne corks popped in Birmingham, there will have been as much relief as satisfaction in a job well done.
The price of £497m was within most market expectations, and well below some more extravagant predictions, so M&B should be safe from any criticisms of overpaying. It also managed to avoid a protracted scrap with cash-rich private equity firms.
The deal is important for M&B in many ways. Chief executive Tim Clarke had been under serious pressure to get an acquisition away, and the fact that the Whitbread package of Beefeaters and Brewers Fayres was such a good fit only increased the heat. His personal standing will have only been strengthened
Having chalked this one up, there is a sense of new confidence in the M&B camp that there could, and should, be more deals to come to release the company’s undoubted ambitions.
Crucially, this should not be seen as just another pub deal. It’s really not about pubs at all.
Rather it is about cementing M&B’s growing status as the UK’s leading operator in the expanding casual dining market and the most significant home-grown player in the wider out-of-home food sector.
The fact that M&B announced the disposal of a 100 smaller drinks-led pubs on top of its steady churn of bottom-end sites, only acted to highlight its continuing shift towards being a business where food and drink are an inter-dependent package.
Within two years, food is expected to make up 40% of total sales. It is not hard to see the day when food will produce the majority of M&B turnover. The business should be congratulated for recognising the shift to food early, and staying ahead of the curve ever since. This deal will underpin and accelerate all its work on market segmentation and new concept development.
The company expects all the acquired sites to be converted to its own formats within two years, although there is an internal expectation that this can be achieved much quicker, perhaps even within 12 months. In any event, the agreement with Whitbread means all Beefeaters and Out & Outs will have to be debranded within seven months and Brewers’ Fayres within a year.
Around 180 of the acquired sites will be transferred to Tony Hughes’ Restaurant Group, to fuel the expansion of brands such as Toby, Vintage and Harvester, as well as the new Premium Country Dining category, which includes the much talked about Project ‘S’ restaurant concept. It is significant that the official announcement gave Premium Country Dining equal billing with established, mainstream names such as Harvester and Toby.
The remaining 60 or so sites will go to Mike Bramley’s Pubs Group, where most are likely to re-emerge under the banner of either Ember Inns or Sizzling Pub Co, M&B’s two food-focused community pub formats.
It is hard to imagine that M&B will now sit on its hands until the Whitbread conversions are completed before looking for more opportunities. This will have whetted his team’s appetite.
Certainly further tie-ups with Whitbread should not be discounted. It is widely expected that Costa will soon become the coffee of choice across the whole of M&B’s restaurants, after a successful launch with All Bar One, and Whitbread’s market leading Premier Travel Inn could well figure strongly when M&B develops its own lodge sites.
M&B always had the synergies to make the Whitbread pub restaurant acquisition work best. It can now move forward confidently by using its inherent strengths to leverage new deals - as one would expect of a company at the peak of the food chain.
