Plain sailing - the rise of Admiral Taverns

Punch Taverns' much-anticipated sale of 869 pubs to Admiral Taverns for £326m has reinforced the latter's position as the country's third largest leased and tenanted pub operator.

From its inception back in early 2004 when it bought 250-odd pubs from Enterprise Inns - and sold on 155 almost immediately - Admiral has expanded into a UK-wide pub empire that now numbers around 2,700 pubs.

With an outlay of just over £1bn of privately-secured investment, subsequent deals have been done with groups including Greene King and Robert Tchenguiz's Globe Pub Company as Admiral has sought to establish itself as a major player in the industry.

Meeting its commitment

In part it has achieved this by fulfilling its commitment to a deal, as someone familiar with a number of recent Admiral transactions confirms. "In the early stages [of a sale] you may see a degree of posturing from both sides. But once you've got them to the altar Admiral delivers and delivers quickly.

"Doing the deal at the price agreed, rather than dropping it at the last minute enhances your reputation and gets you more deals. That's what's happened with Admiral," the source adds.

Despite its impressive rise to market prominence, the group has its critics. Perhaps it's the fact that Admiral is privately owned and has property development interests through its connections with Galliard Homes that so irks guardians of the nation's pub culture - although publicly-quoted pub companies get it in the neck from licensees just as much. Perhaps it is its commercial ambition that rubs people up the wrong way.

Then there are those who question Admiral's commitment to the industry in the long term.

Gary Landesberg, who with his father Alan, and Elliot and David Rosenberg, oversees the business, is predictably unequivocal about Admiral's position. "Yes, we're in this for the long term. If we didn't have this sort of view we wouldn't have just bought 869 pubs," he says.

Admiral is likely to sell "between 10 and 15 per cent" of the pubs acquired, he says, while a proportion of the five per cent of sites currently shut will be the subject of 'capex, capex, capex' to get them back into the business of selling beer and food. The unspecified number of remaining sites will be sold off for alternative use, he adds.

So what has Admiral bought for its £326m? "It's a mixed bag. There's everything in there from 20-year leases to tenancies-at-will," says Landesberg. He stresses that "90 per cent of this estate has substantial outside space" and argues that it is a "myth that it's a smoking ban deal". Instead, the pubs offer the sort of return that means they "fit our model to a T".

Private status

Analysts seem to agree, and point to the group's private status as a key factor in how it can generate upside.

"For Admiral this transaction works because without pressure to drive up earnings per share it can accommodate smaller pubs at the neglected end of the market," says Panmure Gordon's Douglas Jack. "It is acquiring [these sites] for a nine per cent yield prior to big improvements in purchasing terms and investing in pubs - a process which has generated average returns of 20 per cent to date."

Admiral's private status - and the level of backing it secures from its investors - affords the group a degree of flexibility other, listed companies probably envy.

"We're not restricted by things such as securitising our business," notes Landesberg, nor, it might be added, by the need to regularly update the market on trading.

There are currently no plans to float the group, or indeed to sell on to a private equity house or established pubco, although these are all possible outcomes for the group at some future point.

Meanwhile, presumably the market can expect Admiral to look for and pick up more pubs in the coming months. "We have the resources available to buy more pubs and to operate them," says Landesberg.

We'll take that as a 'yes' then.