Capital Pub Company: it's a London thing...

Aristotle had his epiphany in the bath. Sir Isaac Newton saw stars in an orchard. James Hargreaves watched his daughter Jenny knock over a spinning wheel. It's odd, isn't it, the situations from which great ideas can emerge?

While not exactly on the same level as an Aristotle or a Newton, from a meal in a London wine bar a decade ago came the idea for a small but perfectly formed managed pub company with a difference.

Pub industry veterans David Bruce and Clive Watson were having lunch with Slug and Lettuce founder Hugh Corbett in the Boot & Flogger bar in Southwark when the talk turned to what to do next.

The idea is born

"We'd all been in branded pubs in our careers and wanted to do something different," says Watson. "The idea of an independent managed pub company focusing on London was discussed and it took off from there."

Bruce was well known for his Firkin pub chain, while Watson had been a director of Tup Inns - a Corbett enterprise - and Regent Inns.

While Corbett didn't take part in what was to become Capital Pub Company, the fledgling group set about raising funds to buy pubs through an Enterprise Investment Scheme (EIS). Yet despite attracting an initial £8.5m its inaugural year was frustrating, says Watson. "It was difficult to get our first pub. People, like property agents and vendors, didn't know us or what we were about," he says.

With Bruce at the helm, Capital eventually bought a bar called Smithies in King's Cross, but things got really busy in 2002, with the group taking its estate to 10 pubs, including the Ladbroke Arms in Notting Hill, the Angelsea Arms in South Kensington and the Alexandra in Clapham.

"It was a hectic time but it was also like all our Christmases had come at once," says Watson. "A lot of operators were out of the market and we had a pretty free run at things."

Emboldened to do more, 2004 saw the launch of Capital Pub Company 2, again backed by an EIS. A number of pubs including the Mitre in Greenwich, were bought and managed by Capital, but the business was an arms-length operation and officially became separate entities in 2008.

Listing low-point

In 2005 there were more additions to the estate, notably a deal to buy 10 ex-Spirit pubs. But it was the listing on the Alternative Investment Market (AIM) in June 2007 which propelled Capital into the big(ger) time. This was not without its problems, however.

Ironically it was a low point, Watson concedes. Launching onto the stock market at 165p a share, just as the financial system went into meltdown, the company's stock headed south, reaching a low of 32p in February 2009.

The corporate governance costs of being a listed company, even on a market as supposedly 'light touch' as AIM, were proving onerous. "It was the shortest of City honeymoon. But we don't regret doing it. We learnt a lot from the experience," he says. Hindsight is a wonderful thing but Watson still acknowledges the timing could have been better.

"The City is more relaxed about flotations nowadays, but there was pressure on us at the time," he says.

"We weighed up those costs versus the benefits of providing a market for our shareholders and the opportunities of raising capital for the business and we still believe it was the right thing to do."

Capital's shares subsequently recovered, trading recently at 128p. Yet the stock market ride has been a turbulent one. Like a number of listed pub operators, dividends to investors have been suspended since 2008, though last year's placing of £2.8m-worth of shares boosted the group's spending power and helped fund the acquisition of Tomahawk Pubs, which owned two freehold sites, including the Black Swan in Ockham, Surrey.

Passion for individualism

Watson assumed the top job at Capital in June 2008, when Bruce stepped down to pursue his charity interests, though he remains a non-executive director.

Under Watson's leadership the company has continued Bruce's passion for individualism, empowering its pub managers to operate their business outside the constraints often found in managed operations.

"Manager development, as well as that of our assistant managers, has been key.

"We devolve power to our managers, we share profits with them and we encourage all our staff to forge a career with us. These guys know their local market and they are very much individual pubs attuned to their location," Watson says, adding that no manager has left the business to join a rival for the past two years.

"We set out to offer customers a high quality, unique pub experience. And we think we do that."

Now with a largely freehold estate of more than 30 pubs Watson says he's not daunted by the future for the group, despite the pressures facing the pub industry.

"We're confident we can grow this business to 45 or 50 pubs by 2013. London is a good place to be if you are in the right location, and we're in the right locations," he says.

And as it grows and becomes attractive to bigger companies Watson says he's not fazed by the attention such progress can attract.

"We might well be a target for some people and there have been occasions when we've had approaches, but no formal offer has ever been made," he says. "The thing is, why would we sell now? We've turned a corner and we're really enjoying life at the moment."