We recently secured a £110m loan from Hayfin to support further growth and it got me thinking about our journey over the years, and the funding support we’ve had along the way.
Firstly, it might be helpful to outline a few core areas of how we run our business because this has played a key role in the funding we’ve been able to secure to date.
Understanding your pubs
We have in-depth knowledge of our portfolio: We understand all our pubs from the top to the bottom of our business. Myself and our operations director have monthly reviews with area managers to discuss every single pub in the portfolio, so it’s essentially like running 208 separate businesses.
We take a considered approach to growth: We’re of course very focused on growth but always by trying to buy the right assets. We look for opportunities to invest in our estate, we find the right partners to invest in, and we push our business forward pub by pub. Having tested our business through Covid, we feel pretty good about the robustness of it, so are ready to push the accelerator a bit more.
We operate with a lean team: We don’t have multiple layers of management in our business. For example, an area manager could be with a tenant partner, and something may need fixing. Depending on the amount, this will likely result in a call to myself or our operations director and on that call, a decision will be made. We’ll then follow up with action. So, there’s no red tape, paperwork paralysis, form filling-in, etc.
We seek to be genuine partners: The Red Oak model is founded on understanding all of our pubs as individual businesses. That provides the basis for us to invest in our pubs and to assess a fair and equitable rent to charge our tenant partners as well as a wider support package. If we get that right then we create sustainability for them and us. Never has this been more tested than through the COVID pandemic.
We do our best to avoid the voids: Every pub operator knows that the financial delta between a closed pub and an open pub is massive. If you have an imbalance between the pub company and tenant partner, you’re going to be spending a good chunk of your time on failing pubs, generating no income. High void rates are also a big red flag for lenders, so ideally you want to have every pub in your portfolio open and generating cash flow. This is why sustainability as outlined above is so essential.
So, if I rewind the clock to 2016 – five years after we launched – we had grown to 160 pubs and were looking for a £2m development line. We had heard about a new bank that had launched a year earlier, OakNorth, with a tagline of being “for entrepreneurs, by entrepreneurs” and sought to find out more.
We were a profitable, high-growth business so had a choice of funding partners but, ultimately, went with OakNorth because they moved quickly and showed a real desire to fund our business. It soon became clear that speed wasn’t the only factor that set them apart – we were invited to go to their credit committee and have a Q&A with the decision makers. As an ex-banker, I had never seen anything like this before but thoroughly enjoyed the process and the opportunity to personally respond to the detailed questions being raised about our business.
Trust necessary
We completed the loan quickly and, over the next couple of years, they really got to know us and took over a refinancing of the entire company in 2018. Since then, they’ve helped us grow further including the acquisition of 18 pubs from Wadworth in 2019 and 34 pubs we bought last year during lockdown.
This brings me on to a crucial point – you only realise how strong a relationship is and how much you can trust a funding partner during the tough times like Covid or the economic uncertainties we are now facing. OakNorth Bank moved quickly to become accredited for the Coronavirus Business Interruption Loan Scheme (CBILS) and was able to support us and our liquidity with a CBILS loan to help cover us through that period. We are pleased to have since fully repaid that loan. Ultimately, the support we received from OakNorth enabled us to continue growing through the pandemic and build a stronger business coming out of it.
We’ve now, with the support we’ve received from OakNorth, reached a stage in our growth journey where the loan size we need (£110m) falls outside of OakNorth’s sweet spot (which tends to be up to £50m). After six years, it’s a natural parting of ways, but the door is still very much left open as far as I am concerned should their lending parameters change over time. I would highly recommend them as a strong relationship partner for similar businesses to our own, both in times of providing growth capital as well as providing support in more challenging times, or in our case, doing both at the same time.
