Risk-takers will continue to drive pub trade, says adviser
The risk-taking, bigger players will continue to dominate growth in the pub trade, driving the industry forward at the expense of less innovative operators.
That was the message from Peter Hansen, principle of PC Hansen and Co and speaker at this year's Publican Conference.
Mr Hansen, a high-profile corporate adviser who has had a hand in several major pub deals including the Scottish & Newcastle (S&N) Retail disposal, cited three major factors shaping the way the most successful companies are doing business today.
Property value-led companies, high gearing and a corporate culture of not shying away from risky and difficult decisions were outlined as key factors for ensuring healthy growth and making a success of acquisitions.
He singled out industry luminaries including Ted Tuppen, chief executive of Enterprise Inns, and leisure entrepreneur Hugh Osmond, as exemplary risk-takers whose actions have had a significant effect on shaping the industry.
"Interest rate stability and low interest rates have driven good health in the industry," said Mr Hansen, who believed the pub business pattern of acquisitions, mergers, disposals and churn is still a long way from settling down. "Looking at the figures it appears that two-thirds of the industry has changed hands over the past 10 years, but the reality is that one third has changed hands twice," he said.
Mr Hansen's main thrust was that property value is becoming a greater factor in the overall value of pub business than operational profits. "We will see a lot more people taking a property perspective on pubs and more property-focused investors are taking a closer look at the market," he added.
In addition, pubs, it was suggested, are likely to hold their value better than other sectors of the property market in the face of a pricing slump.
The high saleable value of the bricks and mortar has in turn been leading a trend towards higher gearing. With pub companies now commonly realising up to a 300 per cent debt to equity ratio, releasing large amounts of capital for reinvestment and growth, the market will remain a highly dynamic place.
Smaller players and those without significant property assets could find the going tough.
Ian Payne, chief executive of Laurel Pub Company, agreed with Mr Hansen's assessment of the market. "If you look at the property transactions we have completed in the last three years it shows how well we understand the value of property investment," he said.
"Obviously if a pub is not run as a quality business it will fail but, potentially, the pub could be sold for other usage which is still likely to give a good return on the investment."
Former S&N boss Bob Ivell, now at Regent Inns as executive chairman, agreed that operators still had to run a good pub business to succeed, but also raised the issue of a change in the strategy of investors.
"Broadly Mr Hansen is right, though there is a risk if everyone looks at the market from a purely financial property point of view," said Mr Ivell. "It has to be a good business in the first place to succeed, but then one interesting debate is whether property people will, in fact, take a longer term view and so put more into developing that business."
While this may appear a Risky Business - the title of Mr Hansen's Publican Conference session - the corporate adviser whose clients have also included Pubmaster, Morland, Greene King, Wolverhampton & Dudley Breweries, Punch Taverns and S&N, firmly believes that property-backed growth will continue to shape the market.
