From start to finish

City financier Peter Hansen knows a thing or two about pubs and his clients read like a who's who of the trade. By Mark Stretton.

If there is a pub deal afoot, chances are Peter Hansen is involved. He is something of a finance guru and probably knows more about pubs than anyone else within the Square Mile. "I suppose that's why people employ me - I know more about pubs than most in the City," he says. "And I know more about pub finance than most people in the pub industry."

Peter has cut a name out for himself as the adviser and strategist to the industry. He has worked with just about everyone. Previous clients include Greene King, Morland, Pubmaster, Punch, Scottish & Newcastle and Wolverhampton & Dudley.

Having formed PC Hansen & Co seven years ago, he specialises in mergers and acquisitions, on raising finance and on company strategy, specifically in the pub industry. It has been a bumper year. In 2003 he worked on the £1.2bn sale of Pubmaster to Punch, and the subsequent sale of 252 pubs to London & Edinburgh for £57m. He valued the Scottish & Newcastle Retail business before it was sold to Spirit for £2.51bn and was involved with one or two other bits of corporate action.

Yet he is a rare breed. His line of work is dominated by big global multi-billion pound organisations, with armies of bankers and advisers. Normally when a company is looking to refinance or do a deal like a pub acquisition, there is a beauty parade of the City's financial institutions, which all pitch for the lucrative business. The banks have teams that go out and win the business and another team that will actually work on the transaction.

In this world of global domination, Peter Hansen is a one-man machine or, as he puts it, a "soup-to-nuts" man. "I do everything," he says. "I help negotiate the terms of the transaction, then work with the lawyers and accountants on the contract. So I can only work on one or two things at a time."

When it comes to buying or selling a house, clearly the vendor wants to get as much as possible and the buyer wants to pay as little as possible. So imagine that scenario when 3,200 houses are on the table as was the case with the deal for Punch to buy Pubmaster.

When it comes to doing a deal of that size and magnitude, things get quite complicated. It is not enough to have a willing seller and a keen buyer.

Peter says that both Punch and Pubmaster showed incredible discipline and desire to get the deal done. Pubmaster resisted the temptation to conduct an auction and Punch resisted the "we are the only deal in town so take it or leave it" stance.

"The tricky part in a deal is not the mechanics of it," says Peter. "It is the two parties agreeing on where the value can be created and not getting out of line with each other."

The deal, which saw Punch pay £1.2bn to become a 7,400-strong business, was code-named Project Reunion because of the number of conversations that John Sands, of Pubmaster, and Giles Thorley, of Punch, had had down the years about putting the two businesses together.

Last year Pubmaster was the predator. It had ambitions to buy Punch when its share price was down at around 150p. But subsequently Punch's share price trebled and key Pubmaster shareholders (German bank WestLB and Rotch Properties) decided it was time to sell.

"It made an enormous amount of sense to put the two together," says Peter. "Pubmaster is a lot better as a business than people give it credit for. Two-thirds of it comes from regional brewers so the pubs are very stable and well run."

Peter, an American from Chicago, has an MBA from Havard Business School and a background in corporate strategy having spent more than 10 years at Bain & Co and The LEK Partnership. It was with LEK that he moved to London in the 1980s.

He did the due diligence work for NatWest Ventures when it backed the deal that formed Enterprise Inns back in 1991 and has been working on pub deals ever since.

Peter cut his teeth as a pub specialist at NatWest before he was shown the door somewhat prematurely, a few years later. Peter says: "My boss at NatWest Corporate Finance said to me 'we don't believe there is going to be enough business in this sector to justify having a sector specialist'. On reflection that was probably a mistake but it was the best thing that ever happened to me."

Indeed it was - that was in 1997, just as financiers like Hugh Osmond and Guy Hands realised the value in pubs and started buying up swathes of pub assets.

Peter formed PC Hansen & Co to provide independent corporate finance and strategic advice to small and medium-sized companies in the pubs, brewing and leisure sectors.

Of the 20 or so securitisations there have been in the pub industry - the deals that have bankrolled billions by raising finance against the cashflows of pubs - Peter has worked on half of them. "My job is largely to convince the ratings agencies that my client's business is stable and cash-generative," he says. "A lot of people believed that securitisation in the pub industry would prove to be a disaster but it has been anything but."

In terms of innovation Peter says there have been three ideas in the industry in recent years: firstly, branded pubs, "largely a failure, added little value"; secondly, the removal of equity - everything is funded by debt; and finally the valuation of pubs on a cash-flow basis rather than a property basis.

Peter says his job has parallels to a licensee's. "I'm self-employed, my job is seven days-a-week and if I'm not working then my family doesn't eat," he says.

If he were a licensee, he would buy the lease of a run-down pub, and try to turn it round so he could make enough to buy a freehold. "The industry rewards people who take risks," he says. "Those who have been visionary have consistently made money. Those who have not, who have taken the safe route, probably make a living."

Pub companies are forever revealing the war chests that they have amassed to spend on acquisitions. Yet many of the same companies have balked at the prices paid for pubs in recent times, especially tenanted packages. "The tenanted and leased market is not over-valued at the moment, it is fairly priced," says Peter. "The regional brewers don't want to pay the price because they don't understand the model well enough. Higher pub prices is where the market is at - it is not a fad."

Of regional brewers, Peter says they are "tenanted pub companies in drag".

He says that while economic conditions are benign, regulatory conditions are a nightmare. "Every time the government meddles with something, almost without exception, it adversely affects the pub industry," he says. "In the UK we have probably lost 4,000 managed houses since Labour came to power because this government has made them uneconomical so they have gone to lease.

"If the government pushes through a smoking ban that will force more changes [in terms of structure] on the industry."

He says that while the outlook for pubs is bright, the market is contracting. "My view of the industry is fundamentally positive but that is in the context of long-term decline," he says. "People are drinking less beer, there are more distractions for the leisure pound, supermarkets sell beer very cheaply. The decline is not precipitous, it is slow and steady."

He says the perception of what makes a quality operation has moved away from high street pubs and bars. "The back-street boozer was going to die but it is thriving," he says. "They do well because of the high price of housing in the UK. Some people see a house with a pub in it - the bottom-end sector is a lot more vibrant than people give it credit for.

"In today's market you don't see uniformly high quality estates coming on the market. Companies that are squeamish about what sort of pubs they buy need to change their perspective."

Peter predicts consolidation