Bigger fish to fry
Following its huge injection of cash Mark McQuater is looking to grow Barracuda's empire, reports Hamish Champ.
Mark McQuater is no doubt a delighted - not to say a relieved - man. After weeks of media speculation and intense behind-the-scenes activity, last month saw him finally nail the deal that could take Barracuda, the bar operator he founded five years ago, towards its goal of being one of the UK's leading managed pub companies.
Expansion has always been one of Barracuda's driving forces since its inception. Founded to acquire 35 former Vaux pubs from Enterprise Inns in 2000 by chief executive Mark - a former managing director with JD Wetherspoon and Tom Cobleigh - the group has made no bones about its desire to rise to the top of the managed bar sector. The backing of Charterhouse Capital Partners (CCP), which bought the group from its founding investors PPM for £262m, is therefore highly significant.
Barracuda currently operates a portfolio of around 160 upmarket pubs and bars in off-High Street locations, including the student-focused Varsity brands, the Smith & Jones concept and the recently developed Juniper Inns outlets. Company turnover in 2004 revealed a 14 per cent like-for-like increase to £94.4m, while average weekly take per outlet comes in at around £14,000.
"We don't do the mass-market managed pub thing," says Mark. Instead, Barracuda's philosophy sees it cherry-pick sites and re-brand an existing pub or bar under one of the group's flagship outlets. Or alternatively it takes on an existing retail outlet and turns it into a bar.
The Charterhouse deal signals a new phase in the group's growth strategy.
"We have just negotiated a deal with one of the biggest private equity firms in Europe, one which has a huge track record of backing winners," says Mark. "It will only invest if you've passed the most rigourous of examinations," he adds.
CCP, which owns 75 per cent of the group with the senior management team holding the remaining 25 per cent, will not be expecting Mark and his colleagues to rest on their laurels.
"These guys are not interested in sitting still with this business," he says. "They will want us to get out there and grow things. Together we are very much on the front foot when it comes to acquisitions."
Voracious appetite
The group is looking to expand with an appetite as voracious as its aquatic namesake. Some industry watchers remain doubtful as to whether an operator such as Barracuda can continue to maintain its impressive growth profile.
Hitting critical mass and "overdoing it" are much hurled about phrases. But in the main, analysts like what they see, although given the group's privately-held status they - along with everyone else - do not have as much access to the group's books as they perhaps would like.
Mark says the opportunities remain, however, and Barracuda will have the full support of its new majority investor to seek out the right ones and bring them on board.
"We hand pick all our assets and we've a lot of places to go," he says. "We've identified 500 towns where we could start up operations. Since we've currently 160 outlets we've clearly got some growth to come."
The current strategy is to open 25 sites a year, says Mark, but he acknowledges that the 500 outlet mark is the magic barrier, after which point things become complex to operate.
Behind Barracuda's success, apart from aggressively targeting potential outlets, Mark and his new colleagues operate what he describes as a "business model that is more sophisticated" than that pursued by rival operators, many of whom push price discounting as the prime retail driver. Barracuda claims to do things differently.
"We do occasional offers, but overall we've managed to get a top-end customer base, with a high proportion of female customers, and wine high on people's drinking priority," he says.
Keeping a lid on costs is a constant battle for any managed pub operator - an area that Barracuda remains fully focused on, says Mark.
In today's overcrowded market the challenges that await Barracuda and its new financial backers are likely to be testing. But Mark says the group "has already overcome many hurdles in the past two or three years".
"We shall be maintaining the quality and consistency of our brands, keeping costs down and pushing returns up," he says.
CCP will doubtless be watching his progress with keen interest.
The five-year rise of Barracuda
- Jun 2005: Announces group acquired by Charterhouse Capital Partners for £262m
- Apr 2005: Rolls out local pub brand, Juniper Inns
- Mar 2005: Announces it is looking for new backers after founding equity partner PPM revealed it is seeking an exit strategy. PPM holds an 80 per cent stake
- Feb 2005: Group chief executive Mark McQuater dismisses press reports that Barracuda is to be sold. Speculation arose after the group appointed adviser Citigroup
- Jul 2004: Opens first Scottish outlet. The £1.5m site in Perth trades as a Varsity pub. Mark McQuater does not rule out plans to float business on the stockmarket
- Apr 2004: Group portfolio breaks the 150 barrier with the opening of the latest Varsity outlet in Manchester
- Mar 2004: Announces sales of its £1 Varsity customer loyalty card, the V-card, have topped 250,000
- Dec 2003: Reveals a £20m war chest for acquisitions
- Mar 2003: Opens its 50th Smith & Jones (S&J) site near St Katherines Dock, London. Nick Morgan appointed finance director
- Oct 2002: Buys seven sites from the collapsed Old Monk Company for £7.8m
- Aug 2002: Rolls out its 10th new S&J outlet, taking the bar brand to 44 units
- Apr 2002: Group raises £15m in debt to fund expansion
- Sep 2001: Wolverhampton & Dudley Breweries sells 50 pubs to the group for £37.3m, including 22 Varsity outlets
- Aug 2001: Completes £2.5m transformation of the Ambishus acquisitions, including 23 rebranded as S&J outlets
- Sep 2000: Group buys the 61-strong Ambishus Pub Company estate for £16.1m
- Jul 2000: Barracuda, originally called Olivegrange, formed through the acquisition of 35 former Vaux managed houses from Enterprise Inns.
