New pubco snaps up 275 Greene King sites

The transaction is scheduled to complete by early June 2014. Hawthorn Leisure, which is backed by Avenue Capital Group, May Capital LLP and management, said that its strategy is to work in close partnership with its tenants, providing management support and capital investment to help them drive growth and maximise the potential of their pubs. Hawthorn Leisure will also seek to grow through additional acquisitions. The majority of the capital for the acquisition is being provided by Avenue Capital Group, a global investment firm.

The portfolio of 275 tenanted pubs is 98% freehold, predominantly on tied tenancy arrangements. Approximately 192 pubs are in the Southeast, Midlands, East and West of England, 66 pubs are in Scotland, and 17 pubs are in other parts of England. At the same time, Hawthorn Leisure has entered into a three year supply agreement with Greene King for the continued supply of Greene King’s leading cask and premium ales to these pubs.

Greene King said the pubs generated EBITDA in the last year of £12.4m, implying a disposal multiple of 6.1x. The book value of these pubs was £93.8m.

Opportunity​

Gerry Carroll, chief Executive of Hawthorn Leisure, a former managing director of Enterprise Inns, said: “There is a fantastic opportunity to work hand in hand with tenants, who we see as our genuine partners, backing them with management support, advice and investment. With strong financial backing, an efficient business model and a high calibre team dedicated to helping our partners to maximise the success of their pubs, Hawthorn Leisure is in a unique position to support and invest in these pubs and to help them fulfil their potential.”

Rooney Anand, Greene King chief executive, said: “We are pleased to have agreed this transaction with Hawthorn Leisure. Our strategic plan, announced in July 2010, was to reduce our tenanted and leased estate to 1,200 sites. We believe that a smaller estate than originally envisaged is now more appropriate going forward as we move increasingly to higher growth areas in our markets and to improve the customer offer. The retained Pub Partners estate represents a high quality, cash generative business, although it is likely to become smaller still as we transfer some sites back to retail and seek to dispose of additional sites in the estate to improve both yield and returns. We now expect to reduce the estate to around 750 sites.

“It is a sign of the strength of the business and our balance sheet that we have several options for the funds raised through this sale. Depending on site availability and attractive valuations, our first priority will be to seek to further accelerate our retail expansion plans. In the absence of increased investment opportunities, we would also retain the option of using the funds to reduce our overall longer-term gearing position.”

Attractive​

Richard Furst, CIO of Avenue Capital Group and Senior Portfolio Manager of the Avenue Europe Strategy, said: “We are delighted to announce this acquisition. We believe the UK tenanted pub sector provides significant opportunities for further acquisitions, both from larger pub companies and from financial institutions who, in many situations, have become owners following financial restructurings, and may not therefore be natural investors in this sector. Hawthorn Leisure is an attractive business to manage and invest in these pubs and to pursue further acquisition opportunities as they arise.”

Noah Bulkin, founder of May Capital, said: “This is an important and exciting acquisition which firmly establishes Hawthorn Leisure with immediate scale and we are delighted to have a financing partner in Avenue Capital with both the financial strength and sector expertise to allow Hawthorn to continue to pursue additional acquisitions. The operational and financial capabilities are now in place to build a business which can support current tenants and enhance the value of these pubs through further investment.“

CBRE acted on the deal.