Smoking ban proposals may boost corporate deals
The delivery of the White Paper on Public Health outlining the forthcoming smoking ban is likely to intensify the round of corporate bids, acquisitions and disposals.
So claims senior City analyst Geof Collyer at Deutsche Bank, who suggested that many potential deals have been held up or postponed awaiting the outcome of the White Paper. In a bitter twist, proposals that could see pubs driven out of business could well mean better business for the financiers and corporate lawyers of the City.
"Now the smoking proposals have been revealed and the industry has until January 1, 2009 to comply, further finance for deals is likely to be released as pub companies continue to prepare their estates before the ban," said Mr Collyer. "Anyone who leaves it until January 1, 2009, will be in for a nasty shock."
It will be a particularly nasty shock for everybody, including the then Government, if the worst case figures are to be believed. An impact study compiled by BDO Stoy Hayward into potential drop in revenue in licensed premises and consequent job losses makes disturbing reading.
The study predicts a 7.6 per cent fall in customers, creating a profits drop of over £230m and the subsequent loss of 32,000 jobs. The worst hit area footfall-wise would be the Midlands where a predicted eight per cent of customers would simply stay at home, while the South East would experience the worst job losses with a figure of 12,140 jobs on the line.
The widely publicised White Paper confirmed smoking will be banned in pubs serving food, while pubs serving pre-prepared food, no food, and members-only clubs will be exempt. An estimated 78 per cent of UK pubs currently serve food and health secretary John Reid has confirmed the proposals are non-negotiable.
Furthermore, though much recent growth in the industry has been food-led, operators typically make up to three times the margin on drink over food and so it would only take a modest drop in takings to pressurise both managed pubcos and individual licensees into making some difficult decisions.
