Seven years on from its creation, Stonegate Pub Company continues to disprove the notion that you can’t thrive as a wet-led, late-night bar operator. The TDR Capital-backed group is now garnering deserved sector-wide recognition for its approach to developing complementary town and city-centre concepts and engaged teams. With speculation of an IPO still strong, it also finds itself in the position of being the market’s key consolidator.

I imagine the words “about time” may have passed Stonegate Pub Company chairman Ian Payne’s mind when the group and its backer TDR Capital picked up the Investor of the Year Award at the Retailers’ Retailer of the Year Awards earlier this month. Payne has intimated to me on a few occasions his surprise that the deal – the acquisition of 333 wet-led sites from M&B in 2010 – was not recognised at the following RROTY event. Indeed, it missed out that year to what I imagine to the voters was the more aesthetically-pleasing acquisition of Geronimo Inns by Young’s.

Hindsight is a wonderful thing and over the past seven years, Stonegate has gone on to prove what a good acquisition that £373m deal was. Payne’s disgruntlement may also be down to the hard yards he had to put in to get the deal financed. As he previously told me: “To raise £400m in 2010 was not easy. I did a hell of a lot of knocking on front doors, more than anyone else. Trying to raise that level of money in that climate was the hardest thing I have ever done. There were a hell a lot of people who knew me at the time, who didn’t want to be part of what we were doing.” Now, as Payne is happy to admit, many of those doubters want to be his best friend because of the success the business is now having – the award at RROTY was followed earlier this week with two further prizes – Best Managed Pub Company 50+ sites and Best Late-Night Operator at The Publican Awards.

Payne is also the first to admit how fortunate the company has been with TDR, which has proved an incredibly supportive investor, especially in terms of acquisitions and allowing the group to continually invest in improving its existing its estate.

On acquisitions, Payne has said: “The challenge when we started was that we never want a deal to be done in this sector that we haven’t looked at. That doesn’t mean we will do it, but we must always look at it. And that’s what we have done. There isn’t a deal over the past five years that we haven’t checked out. We have never looked outside the pub sector. We are not interested in the casual-dining sector.”

The company carries out c100 investments a year, spending c£25m a year on expansionary capex and £20m on maintaining and repairing pubs. Its average investment is c£230k to £240k. As Payne has said: “This is a lot of money for a company of this size. So we have to make sure we get the right returns.” The fact that the company achieves average ROI of over 40% proves that it is.

While Payne laid out the template for what would make Stonegate successful, chief executive Simon Longbottom, poached from Greene King three years ago, has impressively carried it forwarded and honed it even further. It has been hard to find anyone that hasn’t been impressed by Longbottom since his appointment, his and Stonegate’s recent respective nominations as finalists in the Retailers’ Retailer of the Year and Best Company categories underlining that fact.

As Longbottom told me last year: “Ian had built a good business. I inherited a company that had good momentum, great people and great businesses, and had a good reputation. What I have been able to do is hone the business strategy, why we exist and what the key growth areas are.

“I focus on three key areas. The first is how we organically grow. This is still a business in short pants and, therefore, there is a lot to go at around how we build our formats to appeal to customers, how we manage price. There were lots of areas to drive organic growth. The second focus for us was investing a lot into our pubs. I inherited a very good engine and great people on this side of the business.”

On acquisitions, Longbottom has a rule of thumb that the company has to be able to learn up to three things from the business it is acquiring. From Maclay Inns it learnt more about operating accommodations, from Walkabout operator Intertain it is set to enhance what it can achieve around sporting events. It has become a well-oiled machine in the integration of new teams, formats and locations. As Longbottom puts it: “Acquisitions are our life-blood. It’s brought us some terrific synergies and terrific people.”

On estate management, the company has a unique ability to manage formats/brands trading in close proximity. More than 70% of its sites are in town centres but its mix of formats (it has seven core concepts/brands) gives it the flexibility to apply the right format in the right location – for example it has 11 sites in Newcastle and 10 in Leeds. It has also developed all-day trading formats and is very adept as transforming its offer through day-parts. Although predominantly wet-led, it hasn’t ignored food, and currently generates £120m in food sales per annum.

Then there is its late night-focused Bars and Venues division – the operations here may not take themselves too seriously, but offer fun, safe places, aimed at the mainstream and where the disposable income is to be found. Like-for-like sales across this division are believed to outperform the majority of its competitor set. Indeed, Longbottom has assembled a talented and experienced team around himself, including divisional managing directors Helen Charlesworth and Nick Andrews.

As Longbottom says: “We can dominate in town centres through our different brands. In Leeds, for example, we’ve got 10 licences within half a mile of the city centre. We’re able to split those licences across the formats to get the most out of them. So we’ve got gay clubs, pubs in our Common Room format for students, a late-night venue, a Yates’s, and a Slug & Lettuce. We cover the whole area.

“The drinking out market is huge – £27bn a year – and with seven formats we spread the risk. We’re not precious about which format it is, so long as we can maximise the profitability from each business.”

Then there is the third area of focus – people. From its formation, Stonegate has been committed to developing its people and now employs more than 13,000 staff. It provides some of the most comprehensive staff training and development platforms in the sector via its award-winning Albert’s Academy initiative. Everything starts with its ‘Bar to Boardroom’ policy, exemplified by Payne and Longbottom themselves.

It was no surprise that when community and pubs minister Andrew Percy recently welcomed 100 apprentices from the hospitality sector during their visit to the House of Commons as part of Apprenticeship Week, Stonegate Pub Company and Payne were to the fore. The company is not resting on its laurels on this either. It is currently rolling out a new customer service tool #GR8 SERVE across some its estate after the success of a trial across its Slug & Lettuce brand, which has led to an increase in its net promotor scores. The new tool is focused on behavourial service and strives to help team members understand the emotions and factors driving good customer service.

The group arguably finds itself in an enviably, strong position and with the recent completion of a £595m refinancing, it has the bandwidth to cement that further. The appointment of Longbottom three-years ago set the hares running on the IPO speculation, with investment banks understood to have been appointed and the first quarter of last year pencilled in as the likely target period for said float. Market volatility in the run-up to the Brexit vote eventually led to the process being put on ice, but it would be no surprise if those plans were revived. The company certainly hasn’t missed a beat in terms of performance. It is believed to have seen double-digit increases in both turnover and EBITDA over the past 12 months.

It will also continue to be linked with further consolidation, with Be At One believed to be the latest business to come under its gaze – and with its ability to successful trade many formats in close proximity, it could be another, more than useful addition to its late-night division.

Leading analyst Simon French at Cenkos has put forward that other successful wet-led business Amber Taverns as another possible target. He said: “We wouldn’t be surprised to see Stonegate interested given the volume uplift and resultant synergies it would be able to generate whilst nudging up the freehold percentage of its estate.”

And while an IPO seems the most likely route for the business, the possibility remains that private equity or a rival trade buyer might make it a target. French said: “An IPO of Stonegate has long been rumoured but we would not be surprised to see private equity reassess the potential for this asset with Lion Capital’s purchase of Loungers providing additional evidence that there is plenty of interest at the right price. We have read the speculation of M&B ‘reuniting’ with Stonegate with interest, but we think the dilution to freehold ownership is too much for the M&B board, and its major shareholders, to contemplate. However, we would not rule out other trade buyers being interested, given the opportunity to remove duplicated costs – we estimate central overheads are in excess of £20m – and drive additional purchasing synergies.”

While the dilution to freehold ownership may be, as French points out, too much for the M&B board, and its major shareholders, to contemplate. The thought of buying back a business created out of pubs and a category it could not make work or see no future in, may prove hard to swallow. It is seven years since that initial deal, but you sense Stonegate’s continued success still might hit a nerve with M&B’s board. My thought may be mischievous, but it would be interesting to see its reaction if Stonegate threw its hat in the ring to acquire all or the majority of the c75 sites M&B currently has on the market.

And maybe M&B isn’t the only show in town. Enterprise Inns (sorry EI Group) is at the very start of its journey into the managed pub world, but perhaps still needs to acquire in expertise and tried and trusted brands – Stonegate would fit that bill and more. However, while it would be viable, it’s probably too early in the new stage of EI’s development, post MRO, and perhaps is something that needs to be looked at again 12 months down the line.

I also believe that, in line with the rest of the sector, Stonegate will need to the meet the challenge of continually refreshing its more established high-street brands in Yates’s and Slug & Lettuce, especially as a younger demographic moves towards less-branded, more “authentic” concepts and experiences. However, the group may already have found a long-terms solution to this problem in its growing Town Pub & Kitchen estate and its Common Room format. Unlike its great high-street rival JD Wetherspoon, it is not short of options when it comes to moving with the whims of the consumer and changes in city and town-centre drinking circuits.

So float or no float, Stonegate is well-placed to continue to provide further evidence that a wet-led business, properly run, can deliver the goods. Horse-racing enthusiast Payne, in concert with Longbottom, has taken an unproven, and for some unfancied colt, and turned it into an established thoroughbred. Now from a position of strength, it is time to kick on.