M&A activity is all the rage and key players are lining up regional pubcos and brewers in their sights. HAMISH CHAMP reports on the takeover frenzy
Sitting in the offices of the company's London stockbroker in June this year, Belhaven chief executive Stuart Ross was in a relaxed mood. Despite being repeatedly pressed on speculation that Scotland's leading independent brewer and pubco was being targeted by one of its bigger rivals, Mr Ross was having none of it. "Our strategy is to grow and develop the business, not to sell it," he responded, before adding: "There is no-one beating a path to our door."
It was a message that made sense at the time. True, a takeover wasn't beyond the realms of possibility at some point in the distant future, but who would be daft enough to buy the company now? The Scottish Parliament had, after all, just announced that a smoking ban in pubs north of the border would be implemented within the year and few could predict the extent - financially and culturally - to which such a prescription would hit trade. Fast-forward two months and Greene King (GK) announced it had acquired Belhaven for a total enterprise value of £254m, a deal described by GK chief executive Rooney Anand as being a "unique opportunity to achieve instant scale". Belhaven, he said, was a business "we have long admired for the strength of its pubs, its brands and people". GK has "admired" a number of companies during the past nine years and bought 11 of them. Some observers predict the round dozen coming up in the not-too-distant future. City analysts have unpicked this particular acquisition, which finally cleared this week. A number believe the transaction - despite the relatively high price representing an 18 per cent premium on the closing share price on the day before the announcement of the deal - to be yet another feather in the cap of the Suffolk-based company. As for timing, Deutsche Bank's Geof Collyer says it was up to the company to prove Belhaven's management "did not sell at the top", viz the incoming smoking rules.
Meanwhile, there remains understandable interest in which entity the consolidation fairy will wave her magic wand at next.
Let's face it, it's currently open season, with most players appearing either to be up for grabs or ready to embark on a spending spree of their own. It's not quite a free-for-all - yet - but with a few notable exceptions pretty much everyone is in play and the scent of acquisition hangs like a heavy pall over the sector.
The influx of private capital, together with the cheap borrowing situation, adds to the attraction. As one analyst put it recently, venture capitalists are awash with cash and are willing to gear up the equity element of their funds by up to three times. These parties are seemingly able to accept lower returns while simultaneously outbidding current operators on a regular basis.
Well over £2bn has been paid out in various deals in the past 12 months and there is little sign of the pace slackening in the months to come. Players such as Regent Inns and Ultimate speak bullishly of hitting the acquisition trail to bolster their prospects, while the economies of scale argument is a key element driving the buying sprees of companies such as Wolverhampton & Dudley Breweries (W&DB) and the aforementioned Greene King, which has declared savings upwards of £20m from deals it has done in recent years.
Analysts speak openly of any number of regional operators being candidates for takeovers, while the high street remains an open playing field for those gutsy enough to buy at the right price while having the appropriate integration and/or closure strategy in place.Regional brewers, with their valuable freehold pub estates, are clearly becoming increasingly attractive. Rationalisation in production capacity combined with a bolted-on portfolio of pubs to sell one's existing beer? Marvellous!
It's not all about sharks hunting the minnows either. Perhaps having read the tea leaves, Belhaven is believed to have approached Greene King, as Essex brewer and pubco Ridley's did around the same time, with a view to coming to an agreed takeover deal.
Others may start out resisting bid overtures, but weaken when the owners finally cotton on to the multiples they can sell at now, compared with what they will ultimately have to sell at further down the line.
This must surely be a pattern for the future. Given the leverage that a range of companies - from established pub operators to venture capitalists - can put into action, thanks to their access to cheap debt, pound signs will be popping up in front of some of the most unlikely industry eyes in the course of the next 12 months. For as long as the owners make a decent business of things and have no urge to sell, they will surely remain independent. In any other scenario, expect more deals, and sooner rather than later.