Pubs whet the appetite of investors
After years of playing second fiddle to casual dining brands, pubs are whetting the appetite of investors, according to business advisory firm BDO.
The “return of the pub” is set to play a dominant role in the M&A market over the next few years, according to the Restaurants and Bars Report published today by BDO.
High quality pub businesses are in high demand as craft beers, spirits and experiential propositions continue to pull in the punters and create strong returns for investors.
In addition, with consumers revelling in the prolonged hot weather and England continuing its World Cup run, the sector is set for a bumper summer which will further pique the interest of those looking for attractive returns.
Unlike the casual dining sector – which has seen a number of high profile businesses struggle, including Jamie’s Italian, Prezzo and Strada – pubs are enjoying the attention from a broad and varied trade buyer pool, with large and regional brewers said to be looking to boost their distribution capability through acquisition.
Private equity interest remains strong for operators with differentiated propositions.
Pub groups such as ETM, New World Trading Company and Brewhouse & Kitchen are all rumoured to be in PE conversations.
James Fieldhouse, mergers and acquisition director at BDO’s Manchester office, said: “Pub numbers have gradually fallen over the last few decades.
“The trade has been dealt blow after blow with legislative changes, falling discretionary spending, sky high rents and cheap supermarket alternatives.
“But things are definitely looking up.
“Demand has now met supply and that has presented an opportunity for differentiated operators to deliver strong like-for-like growth.
“The casual dining market, on the other hand, remains challenging. Competition is high, margins are being squeezed and the future looks tough for those that aren’t best in class for concept (to entice consumers) and operational performance (to protect margins).”
BDO says conversations with investors are centred on experiential, localised and tailored pub experiences that are driving up margins.
Mr Fieldhouse added: “Quality pubs have proved to be resilient assets.
“They have played an important part in our high streets, cities and local communities for hundreds of years and have successfully adapted to ever-changing consumer demands.
“There are a number of exciting, fast-growing managed pub and bar groups that are likely to be on the radar of investors.
“We can expect a wave of consolidation in the next 12-18 months.”
The report reveals the five themes shaping conversations with investors are:
The return of the local – operators taking a hyper-local view are successfully creating value in local communities;
Independence day – consumers want authentic pub experiences so those that can flex and tailor their offering to deliver authentic guest experiences have the edge over less nimble competitors;
Experiential propositions – millennials are showing a preference for experiences over material goods such as the search for ‘instagrammable moments’;
Premiumisation – craft beers, craft spirits and independent coffee brands provide higher growth potential and higher margins for businesses and investors; and
Accommodation – pubs that can sweat their assets fully and take advantage of the boom in accommodation sales by converting ‘upper parts’ are not going unnoticed.
