Inside Track by Peter Martin
It’s been smiles all round this week for those involved in the Wizard Inns deal. Wizard boss Chris Hutt and his management team are happy, having walked away with a few million between them. Guy Hands is happy having made another sizable pub investment profit for Nomura, and demonstrating that he hasn’t lost his touch. Ralph Findlay, the Wolves & Dudley chief executive, is happy too. Despite paying a chunky price, he has acquired an estate of 63 pubs that he sees as being well invested, trading well and a good fit with his existing estate, particularly giving him an enhanced presence in the South East and London. They will also raise the overall quality of W&D managed estate. Average take in Wizard pubs is £13,400 a week compared with £10,300 in W&D managed pubs. But Findlay still sees an upside in driving up food sales in the Wizard estate. Food averages 18% of turnover, compared with the 30% W&D is now achieving. He is also looking at £2.5m in overhead savings. Most of the Wizard pubs will stay unbranded, although half a dozen are likely to be earmarked for conversion to Pitcher & Pianos, with a few more converted to the Bostin Local or Service That Suits formats. The simple truth from the Wizard deal is that good pubs in good locations will attract buyers and good prices. But what does it say about the rest of the pub market, particularly high street players such as Yates and Regent. The comparison with the planned management buy-out at Yates is pretty stark. W&D paid £89.9m for Wizard, not including £6.8m in cash reserves, while the Yates deal is expected to be valued at a not dissimilar figure, £93.4m, for 145 supposedly prime high street sites. But where Wizard attracted a price of 7.4 times ebitda, twice sales and 1.4 times asset value, the proposed Yates offer comes out at 3.5 times ebitda, just 62% of sales, and 80% of asset value. The problem with Yates, once the star of the high street, is in that it has found itself in the wrong place, at the wrong time and probably with the wrong offering. Current management may have halted the decline, but the company is still in a worse position than when Mark Jones and his team took over. Institutions will probably snap up the offer, giving them a chance to get out, but smaller, private investors will not be so happy. Their argument is that their long-suffering should be worth more and that management should work harder now to raise the share price rather than keeping any future upside for themselves. Jones will probably get the deal away, but not everyone will be breaking out the cigars there. There is also a message for Regent Inns. Much of the value in the Wizard deal came from the unbranded pubs that Wizard bought from Regent. That raises the old question of whether Regent would have been better off sticking to its old core business rather than rolling out Walkabouts? The truth is that it was not just the Regent management that backed the strategy. Market analysts and institutional investors were among the loudest calling for big, sexy roll-outs. o Premium prices for good businesses don’t look like being restricted to the pub sector. Rumour has it that Wagamama, the noodle bar chain, is now in exclusivity with a private equity buyer, having parked its IPO plans, with a price likely to be in excess of £50m. Wagamama has sales of around £30m from 24 restaurants. The conspiracy theorists were out in force on Friday on the announcement that Paramount, which owns Chez Gerard, had been approached ‘from parties connected with management’. There was conjecture that Ian Neill, Wagamama’s chief executive and a Chez Gerard non-exec, might be involved with a plan to bring the two together. It seems Neill is not part of it, though the prospect of consolidation at the top end of the branded restaurant market with a group that could bring together the likes of Chez Gerard and Wagamama, and for instance Yo! Sushi and Loch Fyne, would be nothing less than mouth-watering.