Paul Hemming: the dealmaker

Selling Balls Brothers to Novus Leisure is just the latest deal by Paul Hemming. In the murky world of corporate recovery he's a leading light. But he's not just a number-cruncher, as Phil Mellows discovers.

Friday lunchtime in the City of London. Where can we go that's quiet? Could be a challenge. Except there's always the Ball Brothers wine bar conveniently across the road from Paul Hemming's office.

Hemming, partner in Zolfo Cooper's corporate advisory services, is in the foggy midst of the deal that last week saw Balls Brothers sold to Tiger Tiger operator Novus Leisure.

Sitting here, in the quiet, gives you a sense of how the long-established family business might have lost its way, why all those City suits with stuffed wallets are walking past the door. And how, with a fresh vision, the potential of a great space in a great location could be realised.

It gives an insight, too, into the obscure world of corporate restructuring. Hemming's latest job is one of a series of significant deals that have revitalised the likes of Laurel, Orchid and Barracuda. It's not all number-crunching. You have to understand pubs.

Hemming trained as an accountant, but "I was never good at the auditing side of things, it didn't suit me," he says, so he moved across to corporate finance, which he found was "great fun". Although the people closest to him didn't feel quite the same way.

"I ran a team specialising in the logistics sector. The family got a bit fed up with me spotting lorries on the motorway. It didn't have credi-bility somehow."

He got the chance to turn his attention to the much more interesting leisure sector in 2005 when he hooked up with pub industry analyst Ian Edward. "There was an opportunity for us to pitch to the board of SFI for a sale but they also wanted a turn-around plan, and we were able to follow the success of that with a number of sales in the sector.

"We specialised in the mid-market. At the time there were probably three or four good advisors and a whole raft of deals to be done, so there was plenty of room for new boys. We tried to do things differently."

Following the management buy-out that formed Zolfo Cooper in 2008, doing things differently became especially important in the wake of the credit crunch.

"It was obvious there would be a state of flux and the corporate recovery side of the business would be very busy. But Zolfo Cooper was hardly a household name. The question was, how could we create a point of difference?"

The answer was the innovation that the company has probably become best known for over the past couple of years — the Zolfo Cooper Leisure Panel.

The panel​

Hemming pulled together some of the best brains in the industry for the panel. It contributes to the company's quarterly Leisure Wallet Report, a comprehensive and much-quoted analysis of consumer trends in the sector. But, more than that, it helps Hemming help the banks to understand the complexities of the industry, the operational matters that ultimately underpin the finances.

"We're not just accountants. We try to offer a bit more. Our biggest problem is dealing with the banks that fund the pub companies. When things start to go wrong they call in accountants to conduct an independent business review to find out what's happening in the business — but accountants aren't operators.

"So there was an opportunity to make a difference by having an expert alongside me. That's where the panel comes in. It goes into a business for two days and comes out with a quick assessment from an operator's view.

"It helps us get a better understanding of whether, for instance, we can restructure it as a solvent business if the bank puts some cash into it. Or whether the people running it are the right people for that business.

"If you're preparing to sell a business, you have to really understand the challenges and know how you're going to deal with them."

Hemming found himself picking up the pieces from what he describes as "the worst thing for the industry" — the property company/operating company (propco/opco) model adopted by many managed pubcos.

The model sees the freeholds placed in a propco, leaving the operations to pay high rents to the propco. "The annual rent increases meant that like-for-like sales had to increase by at least 3% for the operating company profit to stand still. When the market tightened, the operating businesses in the likes of Laurel, Orchid and Barracuda were never going to be able to maintain their profitability.

"When we were called into Orchid, for instance, the company was running out of cash. The challenge is finding the right structure that allows new money to come into the business to give a sustainable future. It meant losing some bottom-end sites."

He defends the practice of 'breaking' companies like that to make them saleable, believing it gets shareholders the best possible deal.

"Too many corporate finance advisors promise too much. We combine corporate finance and recovery guys so we can look at all the options. If you scale down a failing business it can still be a good business — the alternative may be that you lose the lot.

"The tragedy of restructurings is they take so long," he adds. "There are so many stakeholders involved and you have a lot of people doing a lot of work. It costs a lot of money. Typically about 40% will go out of a deal to pay advisors. There's an incentive to get it done quicker so you can use that money to invest in the sites. So we focus on driving the process."

Positivity​

When he went into corporate finance Hemming had a notion he'd like to have a rounded role, doing the 'happy deals' as well as the corporate recovery stuff. But thanks to circumstances, he's made his name in the pub industry with the latter. He worries that it means he comes across as too negative.

"I love this industry," he says. "There's a lot of creativity, people with concepts, ideas about how they can make it work. Cash is tight at the moment, but it's a good time to invest." He also believes, though, that pubs need to close.

"It's a very odd thing in the pub industry. People complain when competitors are going out of business. There's a housing shortage yet it's difficult to get planning permission to convert a pub to a house. And it's obvious we can't support every pub. I'd prefer a situation where the pubs that remain, the survivors, become a focus. The last pub in a village can become the hub of that community."

The complaining, he thinks, "takes away from all the good stuff that's going on. No doubt beer tax is too high, but I don't think getting failing pubs out of the system is a bad thing — although it's horrible on a personal level, of course. It's never easy if you're in the middle of it".

Hemming is, in fact, excited about the prospects. The banks that, one way or another, currently own much of the industry are going to come out. "And that will be an opportunity for businesses to acquire sites and build up groups."

Talk about Punch Taverns being broken up is another major factor in the mix. The possibilities intrigue him. "When we get through this, as the market gets better, I feel it's going to be very exciting. There are deals around now that can give new operators a launchpad. There are people finding the right answers."

My kind of pub​

"I was brought up in Kent, and I love country pubs. The Golding Hop is a great little

pub, very quirky with good beer, in the back roads near Sevenoaks.

"And near where I live now, in Dorking, Surrey, there's the Running Horses at Mickleham.

"I enjoy bars in town, too. At the moment the one I like is the Anthologist in the City."

Key dates​

• 1981 — Paul Hemming trains as a chartered accountant at PricewaterhouseCoopers (PwC)

• 1988 — Moves to Sydney, Australia, with PwC

• 1992 — Returns to London and joins international accountancy network BDO as a founder member of its mergers and acquisitions team

• 1996 — Goes to Arthur Andersen Corporate Finance to lead London team focused on private