Yates Group has poured cold water on suggestions that it is in talks over a venture capital (VC) funded management buy-out, after City rumours pushed the struggling pub operator's shares up almost 10 per cent in a single day.
The value of the business, which operates Yates and Ha! Ha! Bar & Canteen rose to £62m, as the City responded to suggestions that a VC buyer had opened negotiations with the Yates board.
Yates' official line was that "the company never responds to market speculation", while sources close to the Bolton-based company said they had no knowledge of any approaches. However, some analysts have suggested that Yates could be a candidate for a buy-out at the right price, if outside financiers could generate the new ideas needed to revitalise Yates' core offer. Last month, chief executive Mark Jones, who joined the company from Pizza Hut, said he was confident that Yates was heading in the right direction.
Comparing a like-for-like sale increase in the refurbished 21st Century Yates concept outlets with a like-for-like decline of 6.8 per cent in uninvested outlets, he pledged "the rapid transformation of all suitable sites to 21st Century Yates as soon as possible".
However, Douglas Jack, analyst with WestLB Panmure, pointed out that since March, current uninvested like-for-like sales are down 11.1 per cent, and suggested that the cost of converting the sites was very high compared to the sales lift achieved.
Mr Jack said: "Like-for-likes are minus 11 per cent uninvested, plus three per cent on invested sites. What Yates is saying is that it can get a £35,000 sales uplift for a £175,000 investment in each site."
That equates to just a 13.5 per cent return on capital if the uplift is sustainable, "which historically it hasn't been. Any VC investor would have to approach the business with a very clear idea of how they would do things differently".
As an underperforming business in the already-troubled high street market, Mr Jack suggested that Yates would not be ideal for a VC, "but everything has its price. I think shareholders would be very happy to get 120p to 125p a share in the current market".
Last month the company unveiled annual results that showed like-for-like sales in the Yates brand had declined by 4.5 per cent. Profits for the group had fallen by £2.1m, to £10m.
Mr Jones said: "The rebuilding of Yates Group continues, but against a background of difficult market conditions for high street bar operators."
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Yates to expand Ha! Ha! Bar & Canteen (11 June 2003)