Mark Brumby: What's ahead?
Mark Brumby, analyst at Oriel Securities, takes a proper look to see what may be ahead as part of The Publican Newspaper's 30th Birthday celebrations.
Belhaven, Burtonwood, Jennings, Laurel, SFI and Yates. Takeovers, some via the administrator, others labelled as take-privates, but all within the last 12 months or so and all at prices which compared favourably with their pre-bid levels.
These lead us to ask a couple of fairly obvious questions: what has the stock market missed and are there more deals, in addition to those currently being tabled, to come?
Aside from the simple answers (namely, 'quite a lot' and 'yes') we would suggest that the emergence of new financing initiatives (securitisation, more aggressive sale and leasebacks, the splitting of opcos and propcos etc), the widespread acceptance of a less conservative attitude towards debt, and a new breed of spreadsheet driven entrepreneurs have highlighted, and in some cases created, real value.
The emergence of the financially driven Punch Taverns and Enterprise Inns from the scattered estates of what had been the great, pre-Beer Orders empires should have given us an early insight as to what was in store for the industry.
The old was cast out but, reminiscent of the cyborg in Terminator II, the vast pub estates began to re-form - albeit in a different guise. The quest for profit was driving consolidation - and, even at the dizzy heights of these 8,000 and 9,000 pub-strong chains, it will continue to do so.
Elsewhere, there are more signs of life. After more than a decade of sporadic divestment it is worth noting that some of the UK's more 'traditional' companies are now growing once more. Mitchells & Butlers, Scottish & Newcastle Retail (in the shape of Spirit - for the moment, at least), Wolverhampton & Dudley and others have passed their low points and are buying pubs again. And Greene King never stopped. With the Beer Orders now rescinded, there are few artificial limits to hold any of these companies back.
We would suggest that the logic driving consolidation is sound. We will never have one, 60,000-strong estate but to spread the head-office burden across larger estates, to concentrate buying power and drive out costs appear to be sensible courses of action within an industry which can at times find top line growth hard to achieve.
Meanwhile, at what might rather disparagingly be called the smaller end of the market, lively operators have continued to emerge. Often sheltered from the stock market, a host of private-to-private deals (eg, the creation of Barracuda among others) and ready access to financing has ensured corporate action in the recent past will continue in the future.
Thus, looking ahead. We believe that, given continued access to relatively cheap debt and the market's voracious appetite for property assets, the game is far from over.
New players, whether financially driven or more traditional in their outlook will continue to prosper and grow. They will identify value, will revitalise the industry and, for the moment, the merry-go-round continues to spin.
