Pub heavy hitters cash in on the anticipated Great British Pub Recovery
If there’s one thing that’s been made clear through the COVID-19 pandemic, it’s that us Brits love our pubs. Closing pubs has been one of the toughest decisions the government had to make in 2020. This was because of the economic impact, of course, but also because of the impact on the British public and the freedoms that they value the most.
And it was this passion for pubs that resulted in an impressive recovery for the pub sector when they did finally reopen in late spring 2020. However, a second national lockdown, extending well into 2021, saw off a number of smaller, independently owned pubs. These have become easy prey for the major players in the UK pub industry, who are now busy picking off these vulnerable assets. They hope that, in 2021, we will finally see the back of the pandemic and British pub-goers can get back to doing what they do best: spending money in the pub.
Bargains to be had for those with cash to spend
2020 was a year like no other in the hospitality sector. Pub owners have taken many different approaches when responding to the challenges of the pandemic. Some dug their heels in and out everything into surviving the lockdowns and extended closures. Others have decided to sell to very willing buyers with deep pockets.
It’s a somewhat tragic situation when a pub owner has a perfectly viable pub business, but is forced to part with their beloved business having simply run out of money and support. Larger pub companies then come along and snap up a great little business in the hope of making it even more profitable when normality is returned.
But there have been challenges for buyers…
Despite it being a buyer’s market on the face of it all, those looking to acquire pub businesses have been faced with rather uncharted territory when making deals over the past 12 months. Firstly, there are limits on travel and personal contact to contend with, which makes dealmaking a rather impersonal, remote activity with less scope for thorough due diligence. Then there’s the unpredictable nature of the pandemic and the outlook for the hospitality sector as a whole.
However, it’s fair to say that the government is expected to return our freedoms and our ability to use pubs and restaurants as soon as possible. Recent figures regarding the value of the hospitality sector to the economy as a whole underline this. The latest figures from the Office for National Statistics (ONS), published in mid-January 2021, show that the UK economy shrunk by 2.6 per cent in November 2020, with the hospitality sector accounting for nearly a third of that decline.
These figures led to even greater pressure from the sector, to re-open as soon as possible, once the most vulnerable groups have been vaccinated. And this increasing pressure will further boost the momentum in the UK pub M&A market.
Pubco big names making private equity-backed deals in 2021
Another well-known and experienced pub operator looking to fund acquisitions in the coming year, with the help of PE investment, is JD Wetherspoon’s Tim Martin. His latest fundraising efforts have generated a further GBP93.7m for his ‘pub trawl’. Martin himself admitted that the pandemic and the fallout for small pub operators has resulted in “opportunities for acquisitions at attractive prices.”
Referring to the selling of profitable pubs out of desperation, Wetherspoon’s spokespeople added: “It may be possible to achieve a higher-than-average return on capital on properties acquired in the next few years, based on the company's past experience.”
Opportunities for savvy managers to buy distressed pubs
Another type of acquisition we may be seeing more of over the coming months, are deals involving pub managers purchasing distressed pubs out of administration.
Whiting will operate the three rescued sites under a new company called WH pubs and will retain 150 staff. Administrators for Whiting and Hammond, Turpin Barker, said they will try to find buyers for the remaining pubs under the Whiting and Hammond banner in Surrey, Sussex and Kent. No doubt, there will be willing buyers for these premises, particularly if they are likely to recover quickly post-COVID.
Larger pub firms also being targeted
As we look to the rest of 2021 and the likely recovery that will take place in the hospitality sector, it’s not just individual pubs that are being targeted. Some larger pub groups have also been bought out by even bigger companies looking to bet their cash on the return of the ‘roaring twenties’ over the months and years to come, post-COVID.
Company director, Barry Ladhar, explained that he and his brother Michael, who now run the business founded by their fathers, feel positive about the future of pubs in the region, despite the impact of 2020: “We don’t need to tell anyone how difficult 2020 has been but we are very positive about the future. We are seeing tremendous investment in Newcastle and we want to continue to play a big part in that,” he said.
And this is the perspective that underpins this entire M&A blitz. It’s an overwhelming confidence that the pub and hospitality industry in general will not just bounce back once this is all over, it could flourish like never before. UKHospitality CEO, Kate Nicholls responded to the ONS figures by stating: “When we were open, albeit with restrictions, in the summer, our return to growth contributed to the economy growing. The figures highlight our power as an economic driver and show why we should be at the heart of plans to revitalise the economy.”
It’s clear investors expect the government to take notice of these figures and prioritise the reopening of the industry as soon as safely possible. It’s also clear that they expect the public to respond to the reopening of the sector very positively and that, come summer 2021, people will be rushing to spend money in their local pubs once again.
The COVID restrictions have been tough on British people and have highlighted what really matters in life. And, for many, that’s family, friends and going to the pub...
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