Inn Business is at a crossroads. Does it keep acquiring or be acquired?
Eat or be eaten. That is the maxim that seems to be driving pub companies as news comes in every day of yet another set of merger or takeover talks.
It is part of the strategy of Inn Business, which this month stormed into the top 10 of tenanted pub operators with two major deals.
Within days of revealing it is taking over the 111-strong Scorpio Inns, it admitted it was itself being stalked by national group Enterprise Inns.
Last week Inn Business was still waiting for an offer to be made - and promptly proved it was business as usual by eating up a second rival, the 83-strong Trent Taverns.
"This is part of a very clear forward strategy that involves our company remaining independent," said chairman Alan Jackson.
"We have now moved quite dramatically in numbers but we are still actively pursuing other opportunities that will enhance shareholder value. There's much more to come yet."
However, he did not comment on whether the approach from Enterprise was unwelcome.
"There is no offer on the table so the ball is now with them," he said.
He revealed other companies had also made approaches but these had not led to offers.
City analysts believe another possibility would be a venture capital deal to take the business private.
When Inn Business was founded by Jackson and Robert Dixon, both ex-Whitbread, more than seven years ago it had just one leased pub from Oxfordshire brewer Morland.
In 1995 it merged with United Breweries and acquired Marr Taverns, creating an estate of 277 pubs.
Within the year it bought Sycamore Taverns, boosting numbers to more than 500. But since then it slowed expansion to put its house in order.
Managing director Stephen Lambert, who joined as finance director five years ago, said the two-year consolidation had prepared the company to reach 750 pubs by next year and 1,000 soon afterwards.
"The business has matured and we now have the infrastructure in place to go forward," he said.
It has EPoS in all its managed houses and an on-line link-up with the tenanted pubs that it supplies. It has also restructured its estate under three regional managers, headed by operations director Quentin Williams, who joined from Sycamore to replace Dixon.
Jackson said: "In this industry we have seen people make significant acquisitions and take their eye off the existing ball and at the same time have difficulty with their new ones. It's a double whammy.
"But we have very thorough systems that enable us to be confident about the pace of expansion, controlling our existing business base and rapidly bringing in any further acquisitions.
"It's not rocket science but there are some companies that are just one step ahead of the sheriff and keep making acquisitions which masks any problems."
Although some of Inn Business' pubs are in Wales, the Midlands and the North West, expansion will continue to be focused on the South.
Finance director Columb Harrington, who joined from Marr Taverns, said: "We want to build critical mass in the southern market where you don't have the same falling barrelage as you have in the North."
After dropping a handful of unbranded managed pubs this year, it is now focused on a portfolio of 670 tenanted community pubs - dubbed the "local's locals" - and a 20-strong chain of managed food pubs, branded as Hooden Horses.
The concept has expanded since 1997's acquisition of Hooden Horse Inns and is set to hit 30 within 12 months.
Last year Inn Business invested £7.8m in its estate. It has also been increasing margins and cutting costs, chiefly through moving more than 80 per cent of its estate to central distribution so tenants can have a one-drop delivery of supplies from Whitbread and Carlsberg-Tetley.
Harrington said: "We haven't seen the full benefit of the investment and the savings from central distribution but it is starting to come in."
This has already helped to boost pre-tax profits by 20 per cent to £7.6m in the 12 months to the end of September.
Turnover was up 16 per cent to £37.6m although like-for-like volume growth edged up by only one per cent.
Since the end of September the slowdown in the economy has led to like-for-like volumes suffering a further decline.
However, rent income was up three per cent and AWP revenue rose nearly 10 per cent.
Jackson said: "It's been a difficult period but we are very optimistic at our progress in 1999."
Inn Business returned to the acquisition trail in November when it bought 14 leased outlets from Allied Domecq's Vanguard Pubs & Restaurants in London and the South East for £2.2m.
Its takeover of Devon-based Scorpio Inns involved only a 25 per cent stake for £500,000 but it already has joint control and aims to buy the whole company at any time before summer 2000.
"It's a total acquisition of the company on the basis that certain criteria relating to performance are met," Lambert explained.
This left funds available for the £12.2m acquisition of Lincolnshire-based Trent Taverns, buying out venture capitalist 3i and directors David Stephens and Colm Taylor.
Although Inn Business is listed on the Stock Exchange, acquisitions have been funded out of debt facilities.
"There's an inevitability about consolidation but everything tends to go in cycles," predicted Jackson.
"I think perhaps the investment fund managers may soon realise there's inherent value in smaller companies. As companies get bigger, there's a great danger that there is less entrepreneurial focus.
"But we see ourselves as a company that swallows rather than is swallowed."