Picking over the bones at PBR

The collapse into administration of Premium Bars & Restaurants (PBR) last week felt, in some ways, like a blessed relief. Talk about death by a thousand cuts. It is more than seven months since the company asked for trading in its shares to be suspended while it sought to negotiate longer-term funding with Royal Bank of Scotland, but in truth it has been in a downward spiral for much longer that, with its shares slumping by 99% in the 12 months before the share suspension. Some commentators have pointed the finger of blame at Mark Jones, the group’s former executive chairman, who was parachuted in four years ago to turn around the company, then called Ultimate Leisure, after a previous crisis. Jones had previously built a solid reputation at Pizza Hut UK and Yates Group, where he engineered a speedy and highly lucrative exit for his private equity backers, yet during his time at PBR he seems to have rubbed a small number of his pub industry peers up the wrong way and when things started to go wrong there were plenty of “I told you so” type comments. But is it fair to blame Jones for the group’s demise? Given the state of the company when he took the helm and the legacy issues he had to deal with, surely the previous regime should shoulder a fair share of the responsibility. Indeed, most of what Jones did in an effort to turn around its fortunes and create a sustainable business model seemed, at least at the time, perfectly sensible. Realising that a group of mainly wet-led nightclubs and bars – three-quarters of them in the North-East and aimed at a mass market audience – was unlikely to prosper after the impending smoking ban, he persuaded its two main shareholders, the Reuben brothers and Dawnay Day, to stump up £25m of equity to gear up and go out and acquire food-led businesses at the premium end of the market. At the same he set out gradually to offload a tail of poorly performing clubs. Jones did not waste any time pushing through the new strategy, snapping up the Prohibition Bar & Grill, Bel and the Dragon and Living Room businesses. Few investors or commentators found fault with the strategy. So where did it all go wrong? Well, where do I start? First off there was the implosion of Dawnay Day, the investment firm that Jones had worked with for many years and had been instrumental in his appointment to PBR. Doubts over the future of the firm’s 29% stake in PBR undermined confidence, while causing Jones himself to question his future at the company. Secondly came the credit crunch, which at a stroke cast a shadow over any company that had geared up its balance sheet to fuel expansion. While net debt of just over £41m appeared to be manageable in the context of £54m of freehold assets and a decent leasehold estate, the need to refinance that debt at a time when the premium customers PBR’s new strategy relied on were going out far less often, created a dangerous predicament. When Jones quit last October, all parties seemed reasonably confident about a positive resolution to the debt negotiations, but as weeks and months went by, and the economic environment deteriorated, the future of PBR appeared increasingly precarious. Until last week, its fate appeared to be to join the stable of companies owned by the Reuben brothers, but a change to the terms of the deal, reducing the amount of debt they would have assumed, seems to have put noses out of joint at RBS. Although the billionaire brothers say they are still interested in some or all of the company, the bitter attack on RBS, which they claim frustrated all attempts to acquire PBR via a pre-pack, makes a break-up increasingly likely. Tim Bacon, working with Luke Johnson’s Risk Capital Partners, is known to have been interested in buying back the Living Room, while Peter Eyles’s Cross Oak Inns, which lost out to PBR in the auction of Bel and the Dragon two years ago, is understood to remain interested in the gastropub chain. It cannot be long before the vultures are picking clean the bones of a company that, not so long ago, appeared to have a solid future. Dominic Walsh is leisure industries correspondent at The Times newspaper