Christmas comes early at Geronimo

Rupert Clevely and his wife Jo could have had little idea they were creating a £60m business when they opened their first pub, the Chelsea Ram, in London more than 15 years ago. But Christmas has come early for the convivial Clevelys after the pair and their backers Penta Capital tied up a deal to sell the business to Young’s last week. What looks like a glorious outcome for the Geronimo founders and Penta, which is also hoping to wrap a deal to sell EAT this week, could also prove a smart move for Young’s. It will bolster the managed estate by more than 20% to 148 sites. With Geronimo’s food sales up at over 40% across its 26 (mainly London) sites, it is a business that occupies a space that Young’s has been traversing towards in recent years. Importantly, the brewer and pub group will retain the expertise of the Geronimo team: Rupert Clevely will take a seat on the board as “executive director – Geronimo” while Jo Clevely will continue to sprinkle her magic dust on the design element of Geronimo pubs, a crucial part of the formula. It smacks in some ways of the arrangement between Paul Salisbury and Paul Hales, the Lovely Pubs duo, and Mitchells & Butlers, who together have developed and rolled out the Premium Country Dining Business (original called Project Orange, then Project S). Together they have taken tired pubs in semi-rural and commuter-belt locations and converted them to uber-premium pub-restaurants. While the two groups have never jumped into bed in the same way as Geronimo and Young’s, they continue to work together on every opening, despite the business now numbering more than 50 pubs. It is thought that the venture, which is now about five years old, still sees Lovely Pubs pocket a fair chunk of the profit each year. In the same way, it is thought that Young’s will seek to harness the entrepreneurial spirit of Geronimo. The full details of the relationship is yet to emerge, but the Clevelys – once they have recovered from landing the deal – will be equally energised at the prospect of getting their hands on a load more pubs. The uplifts from the Punch pubs bought last year have been significant and there must be opportunities to Geronimo-ise some venues at what is one of the finest pub estates in London. The really interesting piece will be Young’s 100-strong tenanted pub arm. It may be that there are 10 or 12 sites within it that can be clawed back to managed will significant upside. The price tag for Geronimo, which comprises 10 freehold pubs, 13 leasehold pubs and three concessions (at airports), values the company at a forward ebitda multiple of 7.3x. Ebitda at Geronimo was in the year to June 2010 £6.1m. This is expected to grow 34% to £8.2m in the current year. The business carries just over £3m of central overhead, which will be cut significantly in the fullness of time. Geronimo’s 26 pubs currently produce weekly sales of £23,000 and pre-overhead annual profit of £315,000. The deal is a timely fillip for other operators, most notably Capital Pub Company. It is a comparable business – the two groups are thought to have held merger talks in the past – and analysts at Panmure Gordon were last week suggesting that the Geronimo transaction will have a healthy impact on the Capital share price. Its shares currently trade at 116.5p but an equivalent valuation would put them above 150p. It is also great news for multiple pub operators. My colleague Paul Charity has written more than once that this band of entrepreneurial pub company, epitomised by the MA200 club, is the lifeblood of the sector, and there will be many owner-operators bolstered by such a success story. It is easy to get carried away at such times, especially against a relative dearth of deals in the pub sector, but the Geronimo sale is for many entrepreneurs, what this business is all about. Snow joke The latest, rather unfortunate and frustrating visitation of snow to Blighty will this morning spark another flurry – one of phonecalls – as analysts try to establish the relative damage of the inevitable trading interruption brought about by the latest dump. The Restaurant Group, with its exposure to airports, is an obvious casualty, but the white stuff is also likely to have significantly impacted just about every casual dining group and pub operator, just as the sector was winding up for its busiest trading period of the year. At a time when many are predicting a frosty first quarter of trading in 2011 in the face of the VAT rise and the potential consumer fallout from spending cuts and so on, let us hope this latest “Big Freeze” will be followed double quick by a “Big Thaw”.