Cerberus Capital Management, one of the world’s leading private investment firms, has acquired Admiral Taverns, the c1,100-strong tenanted pub company, from Lloyds Banking Group, in a deal believed to be valued at around £200m.
It is thought that Cerberus is to make more funds available to Admiral’s management team led by executive chairman Jonathan Paveley to make strategic acquisitions going forward, potentially including group transactions.
The transaction brings to an end Lloyds association with Admiral, providing a complete debt and equity exit. The bank has been a shareholder in the company since a refinancing of the business in November 2009.
Admiral said that the deal represented the launch of a new phase in the development of its business, marking the culmination of a three-year transformation of the group, which has seen it dispose of more than 800 non-core pubs.
The existing senior management team - Paveley, managing director Kevin Georgel, property and strategy director Andy Clifford and chief financial officer Glenn Pearson - will continue to lead the business and guide its on-going growth and development.
Headquartered in New York City with affiliate and/or advisory offices throughout the US, Europe and Asia, Cerberus is one of the world’s leading private investment firms with interests spanning multiple industries including banking and finance, leisure, manufacturing and real estate, and has over $20bn under management.
Paveley said: “This is a great transaction for Admiral Taverns and a tremendous start to 2013. We are delighted that Cerberus has chosen to invest in Admiral and that it recognises Admiral’s future potential. Cerberus’s support will help Admiral develop the business further and strengthen its reputation among pub licensees as the best tenanted pub group in the country.”
Senior managing director at Cerberus, Lee Millstein, said: “Admiral has one of the strongest management teams in the UK leisure industry and we are pleased to be working with them. Their successful transformation of the Admiral business into a leading UK pub group has put the business on an upward trajectory. Admiral’s business provides an ideal platform for the acquisition of additional tenanted pubs in the UK, and we look forward to working with the company’s management team and employees to grow the company.”
Paveley added: “Throughout this process, our over-arching aim has been to maintain our day-to-day support of our licensees and ensure continued smooth operations for our staff and our supply partners, and it’s pleasing to have achieved this.”
The deal comes three years after Admiral underwent a debt-for-equity swap that saw its debt burden decline by £600m with the Lloyds taking a majority stake in the business in return.
The debt-for-equity swap left the group with debt of around £350m, which it announced in January last year had been cut by almost £200m in 18 months, helped by improved profits and the sale of under-performing pubs.
The company was founded in 2003 by property developer Gary Landesberg and at one point encompassed 2,000 pubs, but it fell into administration after an aggressive acquisition strategy left it with nearly £1bn of debt, which it was unable to service.
Since the administration, the group’s fortunes have improved under the new management team reporting EBITDA of c£27m in its most recent year.
Lloyds Banking Group and the Admiral Taverns management were advised by PWC, while Cerberus was advised by Sapient Corporate Finance.
Comment by M&C Report editor Mark Wingett
In June 2011, Peter Hansen, founder of Sapient Corporate Finance, the leading advisory firm, told delegates at M&C Report’s Tenanted Pub Company Summit that private equity players were again circling the market. They remembered what the industry and the returns generated were like 15 years ago, and were looking to invest.
However, he said there was a caveat: “What it is going to require, though, is improved, focused management. As the pub companies reduce the size of their estates, there will be opportunities for management teams to acquire 500 to 1000 tenanted pubs and operate them more efficiently and with greater control. Over the next couple of years better management should be able to counteract the damage caused by the economic downturn and the smoking ban.”
Step forward the Admiral management team led by Jonathan Paveley and success based on hard decisions made just over three years ago.
Firstly, Lloyds decided to take the pain up front to the tune of £600m. It cut hard and deep but also, crucially, backed the new management team, which took a similarly tough line on the company’s then estate and its significant number of unsustainable pubs.
The bank supported the group’s acquisition of the 189-strong Piccadilly estate in December 2010, not only as it had some debt tied up in the package but also because the majority of the portfolio was seen as a good fit with Admiral’s core business and it had already been impressed with the management team’s initial work.
Its faith was rewarded when the balance of the estate was reversed into growth within three months of the purchase. The portfolio is now performing “well ahead of plan”.
Operationally, Paveley says the business is now robust, with underlying trading continuing to improve across its core estate. Admiral’s relationship with its tenants is also thought to have improved, with its Business Development Managers (BDM) rated by tenants amongst the highest in the industry, according to last year’s Tenant Tracker survey by him!
There is still work to be done. 800 non-core pubs have been sold as it looks to eventually operate a core estate of around 800-1,000 pubs. Further non-core pubs will be disposed off, but the group will be given funds to grow the quality of its estate.
It is thought that the new funding made available by Cerberus could see groups of pubs, say 10s, 50s or even 100s explored. Other portfolios left on bank asset sheets could now be pushed across its desk, or attractive opportunities thrown up from the resolution of Punch’s future may also eventually be explored.
The company, and the tenanted sector itself, has come along way since November 2009. There is still some way to go yet but this deal should be seen as a boost for the whole sector and provides a sound example of a solid restructuring: do it once, do it deep enough, and then back the right management team to deliver.
