Comment: Acquisition costs continue to rise
No-one can really be surprised to see yet another family-owned brewer snapped up by a hungry, super-pubco. Even so, after 170 years of trading, it seems that everyone has their price. In this case a whopping £270m for the Hardys & Hansons (H&H) estate of 268 pubs and a 65,000-barrel capacity brewing site.
In anybody's money that represents a huge premium per pub and, at 15 times historic EBITDA, is something of a record.
I've no doubt that Rooney Anand and the Greene King team will over-deliver on identified synergies and cost savings and will
certainly integrate H&H quickly and smoothly. After all, they are experts at this kind of thing following a recent spate of acquisitions, culminating in last year's purchase of Belhaven.
I imagine there could be plenty of pubs they don't want and this will fuel lots of speculation and activity further down the industry. With Whitbread and Punch currently having pubs for sale anyone expecting a quiet summer is going to be somewhat disappointed.
Pub prices continue to rise and seemingly banks, venture capitalists and private investors are willing to provide substantial amounts of relatively cheap money to continue the merry-go-round.
And it is not just at the top of the market that debt/EBITDA multiples are being stretched to the limit.
Last week I was talking to an acquisitive medium-sized operator about a small deal for two freehold pubs and two leasehold units. At 10 times EBITDA we rapidly came to the conclusion that, even after driving out some savings on beer supply through better negotiations with the brewers and a couple of per cent margin improvement, it was going to be extremely difficult to service the borrowings needed to fund the acquisition.
It wasn't long ago that six to seven times EBITDA was seen as aggressive for long-term securitisation finance and three or four times was considered leveraged on standard bank debt.
The banking market is now seeing greater liquidity, very cheap money, tighter margins and lower fees.
At the same time term is often being pushed beyond 10 years in the traditional loan products. Whilst freeholds give banks the comfort they require, loan to value is pushing north of 80 per cent on some deals and lending against leaseholds is growing for the right management team with strong business skills and cashflow
transparency. With Britain's economy seemingly robust, inflation more or less under control and with relative interest rate stability, why should we worry? After all most of us have more disposable income these days that we devote to leisure activities and we tend to eat out in pubs more regularly.
Who owns the pubs really doesn't matter and, in any case, most of us would need a rather large memory to keep track of the family tree for some pubs! So if you're thinking of packing your bags and disappearing for a couple of weeks this summer, take your Blackberry with you - it could be a busy time!
Geoff Newton is relationship director, UK licensed trade, Barclays Corporate Banking
