Capital Pub Company set for rapid expansion

The Capital Pub Company has raised £8m since February and is all set for rapid expansion. Mark Stretton talks to the founders.

Such is the confidence in the two founders of the Capital Pub Company that a record amount of investment has been secured. Launched in February, it has raised £8m through an enterprise investment scheme (EIS). While the final figure is not mind-boggling, it is believed to be the largest amount raised through such a scheme.

In recent months, founders David Bruce and Clive Watson have undertaken a feverish schedule of fund-raising, travelling the length and breadth of the country. Their new venture, focused specifically on pubs in London, has attracted 312 private investors. The amount raised is more impressive for the fact there is not one single bank or institution on the company's share register.

That the new venture was so well received by investors is testament to the track records of David and Clive, chief executive and finance director respectively.

David's accomplishments date back 34 years, most notably when his company, Bruce's Brewery, started a new kind of brewpub at the Goose and Firkin in south-east London.

With £23,000 he launched the first of what was to become a 12-strong chain of Firkins. The chain was later sold in 1988 to Midsummer Leisure, which became European Leisure, for £6.6m.

David then went to work for Grosvenor Inns in 1993 and was responsible for rolling out the Slug & Lettuce chain nationally.

Clive Watson earned his stripes as finance director at Regent Inns and was part of the team that took it from 27 outlets to an 80-unit operation listed on the London Stock Exchange. During that time sales grew from £8m to more than £50m.

He then joined the 10-strong Tup Inns, created by entrepreneur Hugh Corbett, as acquisitions director. This was sold to Joe's, now Massive, for £3.3m.

Now the duo have turned their attention on the Capital.

The Capital Pub Company will focus on strong-performing traditional pubs, totally independent of each other in look and feel.

The pubs will serve the locality but should not be labelled community pubs. "I hate that expression," said David. "To me, the word community conjures up images of a couple of locals plus the pool or darts team."

The only characteristic the pubs will necessarily share is a propensity for healthy till receipts.

The company has taken control of five pubs so far.

The White Hart in the heart of the East End is opposite a hospital and on the doorstep of a daily street market.

"It's a great, old-fashioned boozer," said David. "We get all walks of life in there - students, market boys, doctors and nurses and local residents."

Quite different in clientele is the Lord Nelson a weekday operation serving those in London's financial district.

"Once again, a very tidy operation," said David. "Very busy during lunchtimes and a strong evening trade. The City is dead over the weekends so we close it - it works very well."

Another shared characteristic is that all venues will be freehold so the company can negotiate favourable discounts from the brewers.

It does not answer to a large corporate landlord and will not have to share the profits with anyone, says David. "We don't want to make landlords rich," he said.

"Whenever you make a healthy increase in your profits, the landlords come and take a huge chunk of it through upward-only rent reviews."

Advised by the Business Sales Group, which helps companies identify potential acquisitions, Capital has found further sites and plans to have 12 pubs by the turn of the year.

"The Business Sales Group has been great - it helped us to ferret out some real gems, such as Smithy's at King's Cross," said Clive.

The duo plan to triple the size of Smithy's and apply for a late licence. But the company will not plunge vast sums of money into each new location and it certainly will not be going down the branded route.

"I have seen so many companies take control of a decent pub which is taking £15,000-a-week," said David. "They spend £200,000 re-branding and basically rip the heart out of the place.

"Consequently the existing customer-base is driven out, replaced by a new market, and at the end of it all, the place still takes £15,000-a-week."

Aside from the lack of gains to be had through re-branding, David and Clive believe that a growing number of pub-goers are disenchanted with the plethora of themed venues, and hanker after good old-fashioned pubs.

While the duo have a background in brands such as Firkin, Slug, Tup and Walkabout, the venues will be individual, aimed at discerning over-25s. They will look to provide a varied choice of traditional draught ales and a good selection of wines. They want to establish a wet trade of at least 80 per cent in their pubs, because of the superior margins over food.

Throughout the fundraising process, the company has been advised by Noble & Company, a merchant bank that has a history of helping entrepreneurs establish new businesses in the hospitality sector.

The enterprise investment scheme is a way for unquoted companies to raise cash without having to list on a stock exchange.

The EIS is attractive to investors because it offers heavy tax breaks. For the company it is a relatively short-term measure and Capital is required to sell the company to new investors by 2005 so that existing shareholders can realise potential gains.

There are two alternative routes to investors getting their hands on their cash. One is a stockmarket listing and the other, more probable, is a trade sale to another pub operator.

David and Clive are also heavily incentivised to exit the business at this point with lucrative share options. So for them, the Capital Pub Company is about creating significant value within three years.

Two weeks ago the pair took a bus full of investors on a tour of the pubs around the city. The exercise was a chance for a clutch of shareholders to sample the company's initial acquisitions.

It was also an opportunity for chief executive, finance director and backers alike to indulge in some serious fun. Fun is a word close to David's heart.

"Whatever I do it has to be fun," he said. "It's a vital part of our business - it's hopefully what people experience when they visit our venues."

The challenge is now to find new sites that are as good as the first five acquisitions. "It's really gathering momentum," said David. "People are already approaching us to get involved."

Investors have been quick to jump aboard the Capital ship and with David and Clive at the helm, it is clearly one to watch.

The first five steps​

Related stories:​

The Capital Pub Company raises £8m (23 November 2001)

Capital completes first acquisition (12 October 2001)

Capital Pub Company set to buy first pub (1 August 2001)

Capital beats City blues to raise