Marston's scores a hit with EP

It's hard to say what proved more interesting about Marston's - neé Wolverhampton & Dudley Breweries - recent swoop on EP, formerly Eldridge Pope.

Was it the timing of the deal, the suitor, the price, or the fact that, in an industry where so few walls are without ears, the acquisition was kept under wraps successfully until its official announcement?

Given the track record of EP's owner Michael Cannon, former battery chicken farmer-turned-pub industry entrepreneur, the timing was perhaps the least surprising element.

Businesses that get the Cannon Treatment - Devenish and Morrells spring to mind - rarely hang around for long. Identifying and buying an underperforming company, bringing it up to speed, then selling for a sizeable profit has long been the man's modus operandi. So it was in EP's case.

Having built up a stake in the Dorchester-based group, which for a time was being targeted by Wolverhampton & Dudley Breweries, Cannon pounced on EP a little over two years ago, buying it for £42m, plus around the same amount in debt.

He immediately began sharpening up the EP estate via a series of investment programmes and disposals. Food operations were given a boost, overall trading was improved and under Tim Bird - who has left the business following Marston's acquisition - its Toad Outlets were converted into Que Pasa sites to breathe new life into what had been an ailing enterprise.

Moving on up

Sales in the first year under the new regime rose more than nine per cent, while profits grew more than 13 per cent and the group improved its food offer to the extent that it won Company of the Year at last year's Publican Pub Food Awards.

Yet pub finance experts forecast Cannon would sell up within three years, and such reckoning proved to be bang on the money.

That Marston's came in again for EP's 155 pubs is not altogether surprising, given its earlier interest. It could have paid significantly less back in 2004, but in coughing up £155.1m - nearer £178m including pensions - it has bought a business where much of the hard work has already been done.

For Marston's-watchers - and shareholders - a significant deal has been a long time coming. In some quarters the group was gaining a reputation as an 'also-ran' when it came to deals.

Chief executive Ralph Findlay has had to disguise his irritation at suggestions his company had lagged behind rivals on the bidding front, preferring to point to overall trading performance improvements.

But the economics of the industry demand that deals are done and Marston's has missed out recently. Quite why depends on who one speaks to. Marston's understandably says it has been prudent and passed on those deals it felt were too highly priced. Others suggest it has lost out because vendors chose to sell to a rival for 'cultural' reasons, among others; some assert this was the case with Hardys & Hansons' decision to sell to Greene King last summer.

The City has, meanwhile, given the EP transaction the thumbs-up, with analysts arguing it is the exactly the sort of deal Marston's should be doing.

James Ainley of JP Morgan noted the South England location of EP's pubs and their proximity to other Marston's sites as a plus point, while Deutsche Bank's Geof Collyer was positive, though he thought the price "slightly expensive" and was concerned that the existing EP management had already left.

Just what Marston's needed

"With minimal organic growth Marston's needed a deal," said Panmure Gordon's Douglas Jack. He added that Marston's has "only four months to develop smoking-ban solutions," although this assumes that EP has not prepared at all for the looming restrictions, which is unlikely.

For the time being then, together with its acquisition of the 30-plus Sovereign Inns estate for £19.4m, the EP deal goes some way to redressing the view that Marston's has lost its acquisitive nous.

Asked if Marston's was now firmly back in the hunt for deals, Findlay said: "What is important is that we can do the right deal at the right price."

EP gives his company further coverage in the lucrative South England market around the Southampton/Portsmouth/Poole area, with a strong emphasis on food and accommodation, and scope for further investment. EP's pubs will get the Marston's' rebranding treatment, while a number of Que Pasa sites will convert to Pitcher & Piano formats. And up to a dozen of Marston's' unbranded high-street sites will become Que Pasa outlets.

Having paid a full price for the right deal on this occasion, Marston's has reasserted itself as a dealmaker that wishes to be taken seriously.

Finally, the fact that the first anyone outside the transaction knew of it was when it was announced on January 25 suggests that where there is the will to keep such deals leak-proof, leak-proof they shall remain.