Silverfleet Capital

Barracuda

Business overview

Barracuda Group is a national operator of pubs and bars, and is one of the top ten largest managed pub operators in the UK, with four distinct brands; Smith and Jones, Varsity, Barracuda Bar and Juniper Inns.

Investment rationale

Silverfleet Capital has a long and successful track record in the pub sector. In early 2000 the managed pub sector was out of favour with valuation multiples much lower than for tenanted pub businesses. We recognised this and therefore decided to sell our tenanted pub investment, Pubmaster and teamed up with Mark McQuater to pursue opportunities in the managed pub sector. Our aim was to buy and build a top quality managed pub business operating in niche markets within secondary towns and suburban high streets, which at the time were poorly served by other national operators. We reviewed a number of potential acquisitions before completing the £50 million acquisition of a high quality and largely freehold estate of 35 pubs from Enterprise Inns in July 2000.

Value creation

This was a highly successful buy and build with the initial acquisition being quickly followed in October 2000 with the purchase of AIM listed Ambishus Pub Company in a £36m public to private transaction which added a further 61 pubs to the group.

In September 2001, a further 50 sites were acquired from Wolverhampton and Dudley for £37m, these included 19 student focused Varsity pubs; and finally in October 2002 Barracuda acquired a further eight bars owned by Old Monk Plc.

In each case the acquisitions were rapidly integrated into the group, the lower quality pubs were sold and, with many of the remaining sites benefiting from a substantial refurbishment and rebranding programme, operational performance improved significantly.

We worked with the management team to set up a strong corporate structure for the newly created business including the introduction of John Conlan, an experienced leisure sector Chairman and the recruitment of a new Finance Director. Having made the various acquisitions and developed the four strong brands we moved the focus to the development of individual sites where the average return on investment for the 39 new sites opened was c.30%.

During the period of our investment, Barracuda became one of the top 10 managed pub companies in the UK, growing from 35 to 155 units with a development pipeline of more than 60 further sites. Branch EBITDA grew from £12.3million in 2001 to £29.3million in 2005. The business was the fastest growing managed pub company in the UK with market leading operating margins and won awards for Pub Company of the Year and Retail Brand of the Year.

Outcome

In 2005 we initiated an auction process to sell the business involving trade, property and private equity purchasers. In June 2005 the business was sold to Charterhouse Capital Partners for £262million resulting in a return of 3x cost and a 27% IRR.