Pubmaster, the second largest independent UK pub operator, was acquired from Brent Walker Group plc in November 1996 in a deal valuing the business at £168m. At acquisition, Pubmaster operated some 1,600 pubs of which 1,500 were tenanted and 100 managed.
Silverfleet Capital saw the opportunity for significant growth through acquisition, as the pub sector continued to consolidate. The strategic plan was to sell the managed pub division to take advantage of the high multiples in that sector and to reinvest the proceeds in tenanted pubs which were available at much lower prices. In addition, Silverfleet Capital backed management’s plan to improve the quality of the estate and enhance profitability, through a targeted programme of capital expenditure.
Prior to implementing our planned buy and build strategy, we successfully realised Pubmaster’s non-core operations; in May 1997 the managed division was sold for £36.7m and the gaming subsidiary was sold to Bass for £5m.
With the business now solely focussed on its tenanted operations, in June 1999 we acquired 54 pubs from Devonshire Pub Company for £17m and 152 pubs from Mercury Taverns for £35m. Following a successful securitisation in July 1999, which raised £305m, we refinanced existing debt and acquired the freeholds on the leased pubs for £105.2m. In the same month we raised £100m bridging finance to continue the buy and build strategy, acquiring 662 pubs from Swallow for £126.9m. On each acquisition, the business renegotiated with beer suppliers to achieve better buying terms as a result of increased scale. During the course of the investment significant sums were also invested to enhance the quality of the estate and several hundred underperforming pubs were sold.
In December 2000 the business was sold to a trade consortium for an enterprise value of £499m, generating a 2x return and an IRR of 21%.