Admiral deal is a boost for tenanted pub sector
Speaking at our recent Tenanted Pub Summit, Peter Hansen, founder of Sapient Corporate Finance, said: “What it is going to require, though, is improved, focused management.
As the pub companies reduce the size of their estates, there will be opportunities for management teams to acquire portfolios of tenanted pubs and operate them more efficiently and with greater control. Over the next couple of years better management should be able to counteract the damage caused by the economic downturn and the smoking ban.”
Step forward the Admiral management team led by Jonathan Paveley and Kevin Georgel, who have secured investment for their c1,100-strong tenanted estate from Cerberus Capital Management, one of the world’s leading private investment firms, in a deal believed to be valued at around £200m.
Cerberus was willing to acquire all of Admiral — both core and disposal estates —recognising that the business yields stable earnings and has strong prospects; and that the management team has proven ability in maximising returns.
Cerberus’ investment is a reward for tough decisions made just over three years ago. Then majority owner Lloyds Bank, which has exited Admiral with this deal, decided to take some serious financial pain to the tune of £600m. It cut hard and deep but also, crucially, backed the new management team, which took a similarly tough line on the company’s estate and its significant number of unsustainable pubs.
The bank supported the group’s acquisition of the 189-strong Piccadilly estate in December 2010, not only as it had some debt tied up in the package but also because the majority of the portfolio was seen as a good fit with Admiral’s core business. Its faith was rewarded when the balance of the estate was driven into growth within three months of the purchase. The portfolio is now performing “well ahead of plan”.
The result of all this work was the stabilisation of the Admiral business, the repayment of £200m of Lloyds debt, and now this deal.
Operationally, Paveley says Admiral is now in robust shape, with underlying trading continuing to improve across the core estate. Admiral’s relationship with its tenants is also thought to have improved, with its business development managers understood to have been rated by tenants amongst the highest in the sector in last year’s Tenant Tracker survey by him!
There is still work to be done: 800 non-core pubs have been sold as Admiral looks eventually to operate a core estate of around 800. Further non-core pubs will be disposed of, but the group will be given funds to improve the quality of its estate.
It is thought that the new funding made available by Cerberus could see pub group acquisitions examined. Other portfolios residing on bank asset sheets will inevitably be pushed across Admiral’s desk, while attractive opportunities thrown up by non-core disposals from rivals and the resolution of Punch’s future may also be explored.
The company, and the tenanted sector itself, has come a long way in the past few years. There is still some distance to go, but this deal should be seen as a boost for the whole sector and provides a sound example of a solid restructuring: do it once, do it deep enough, and back the right management team to deliver.
