The buying game

S&NPE says quality pubs are still available in the increasingly competitive property market - but can take a bit of finding. Hamish Champ reports.

The rise in pub prices is the talk of the industry and profit multiples have been sneaking upwards for some time, with many wondering where it will all end. But for those looking to buy quality pubs, the upwardly mobile price curve has not proven to be all bad news.

Take Scottish & Newcastle Pub Enterprises (S&NPE).

According to Chris Sladen, the group's general manager for acquisitions, there are still opportunities to be had, even if they take a bit of finding.

"Prices have clearly risen over the past two or three years," says Mr Sladen. "This is a reflection of the dwindling supply of quality pubs and an increase in demand from the bigger pub companies such as Punch Taverns."

While this situation was creating tougher conditions for companies looking to acquire, the price hikes have prompted a number of smaller multiple operators to "cash in and get out", freeing up sites for those able to move fast on a deal. "We want to expand but we don't want to store up problems for ourselves in the future by over spending," he says.

While this does not mean the group will pay silly prices for pubs, says Mr Sladen, its goal of acquiring the best quality sites has been made slightly easier by a relaxation of its buying criteria. S&NPE now has a simplified sign-off procedure that stretches all the way down to operations director level.

Viability and sustainability​

"In today's market, vendors don't want to be kept waiting and we can move quickly, although this is not about a dash for growth. We still have the very highest standards regarding the viability and sustainability of the pubs we are interested in buying."

Returns are still there for the right price, says Mr Sladen (pictured)​. While the industry has become smarter at financing its operations, running pubs remains a relatively profitable business "under-pinned by rising property values".

S&NPE stayed in the global brewer's ownership when the S&N Retail managed pub operation was sold to Spirit in 2003.

Traditionally, the leased pub side of the business had been moderately active when it came to acquiring pubs and estates, buying around 25 sites annually.

This situation has been overhauled in recent times, with the group buying more than 600 pubs in the past couple of years, spending more than £490m on acquisitions and boosting the size of its estate by 40 per cent to more than 1,600 pubs.

It has bought six multiples in the last year, as well as 63 individual sites. S&NPE is currently buying pubs at the rate of one a week, aiming to buy 75 in the next 12 months, a figure three times that of two years ago.

Buying and managing more than 1,600 pubs for the Royal Bank of Scotland, S&NPE takes advantage of its skills in determining a likely pub's potential, as well as securing good prices on drink purchases through its brewing parent.

Joint ventures are also running according to plan. The Waterside Pub Partnership with British Waterways aims to develop, open and operate up to 100 canal and riverside sites. The group also operates 500-plus pubs for Robert Tchenguiz's Globe company.

"Fundamentals and potential are what attract S&NPE," says Mr Sladen. "We look at a pub's current trading levels and what we think it should be doing. We buy on the fundamentals and future growth, not just the pub's profit and loss account." This approach makes it more viable for the group to take on run-down sites that do not appeal to other operators in the market. "We have a good track record when it comes to refurbishing sites and we're always on the lookout for capex opportunities," he adds. The group has spent more than £12m on capital expenditure during the past year and around £67m in the last five years.

He points to the British Waterways venture, which has already grown to 41 waterside pubs throughout the country since the first, Foxton Locks, near Market Harborough, opened last year. "We have access to alternative funding [through the Globe and Waterways deals] and we've subsequently ended up with a more simplified criteria when it comes to sustainability," he says. "We've taken our expertise in undertaking large jobs and stretched it."

Smoking ban​

Many industry observers reckon the incoming smoking ban will lead to a significant shakeout at the bottom end of many operators' estates. Mr Sladen acknowledges that times will get tougher for some, but believes S&NPE is well placed to make the most of the dynamics of the market.

"Things are likely to get even more competitive in the coming year to 18 months with the ban in England, and there is the potential for some degree of dislocation in the market. There will be some short-term impact but things will likely pick up.

"When it's come to buying pubs in Scotland in the last 12 months we've looked at those opportunities with good outside areas and not progressed if these don't exist. If you are quick on your feet when it comes to identifying and securing the right deals then opportunities are there."

Finding appropriate sites generally is being addressed in a similarly imaginative way. "Increasingly we get leads from smaller, less traditional agents such as Drakes and Pub Sales Group, plus our freetrade guys hear of venues that are soon to come to the market and we get a heads-up that way."

A tough market for those looking to buy good quality pubs? Always - but S&NPE isn't going to let that stop it.