Admiral and Hawthorn ‘made for each other’

Originally announcing plans to go public as a standalone company in April, in the event it was a trade buyer that sealed the deal for Hawthorn.

During an IPO roadshow, Hawthorn CEO Mark Davies had sung the praises of a listing, telling MCA the public markets were as “hot as they had been since 2011”.

Instead, the announcement proved a catalyst for a flurry of trade and private equity interest, and it was Admiral Taverns, one of the leading tenanted pub companies in the market, which won the bidding war.

Paying NewRiver £222m for Hawthorn, the deal makes Admiral one of the “top three or four players” in the space.

The addition of Hawthorn’s 674 pub portfolio will boost Proprium Capital Partners-backed Admiral’s own wet-led community pub portfolio to more than 1,600.

With an enlarged portfolio of relatively modest pubs, worth around £300k each, the companies “deserve each other”, analyst Mark Brumby told MCA.

Shore Capital described the proposed disposal price, a c10% discount to the March 21 book value of £248m, as a good one for NewRiver shareholders, coming out towards the top-end of its £180m-£230m valuation range, and equating to an exit multiple (including overheads) of c12x (recovered) EBITDA.

MCA understands there was a strong appetite from the capital markets around an IPO, but the announcement in April generated healthy interest as well from the private sector, with potential trade and private equity buyers.

A source close to the board told MCA that the Admiral offer represented the right price and speed of execution for shareholders and stakeholders.

Mark Davies, who led the sales process, and who has been key in nurturing and building Hawthorn, remains CEO for the time being – though it remains unclear whether he will stay on, or how the new portfolio will be integrated into the wider estate.

Graeme Smith, managing partner at AlixPartners, said it was “not unexpected” that a trade buyer like Admiral, which has the advantage over private equity of supply chain synergies, would win out.

“It is an easier deal to do if there is interest from a trade buyer,” he said. “It’s a transaction that gives you certainty that it’s going to go through, you know the price it’s going to take place at and you are able to sell 100% of the business, whereas you may have to retain some if you IPO it.

“Admiral is one of the leading platforms in the tenanted market. They have been a consistent acquirer in the market so no surprise to see that continuing.”

With plenty of investor demand for pub assets, it was a good time to sell pub businesses, Smith said, and he predicted further activity in the market.

“We are certainly seeing a lot of interest in the pub market from investors, real estate firms, private equity and also the trade buyers, so I think absolutely we will see further pub M&A to come over the next 12 months or so.

“It’s great to see this level of M&A and valuations being achieved, so soon after full reopening.”

MCA contributing editor Peter Martin described the deal as an obvious consolidation in the tenanted & leased sector.

“You need critical mass in in that area when you’re up against the likes of Punch and Stonegate,” he said.

The question for Martin is how Admiral integrates and develop the tied model, a part of the market still under a lot of pressure.

“That part of the market, though it has settled down a lot, we’re still foreseeing closures.

“Managed pubs are doing well, they’re in pretty good place. As we come out of the pandemic, the area which is more independent is under pressure. How Admiral navigate out of pandemic with their tenanted & leased partners is going to be interesting.”

Martin suggested Admiral would take a closer look at the business and see how it runs before deciding exactly how to integrate the new estate.

“It’s all very well looking at it on paper, obviously those guys have kicked the tyres, but I think they will see how it runs for a while first then take a view.”

The big unknown, as it is for the whole sector, is where consumers will be, Martin added.

“It may well be that some of those tenanted pubs are in commuter areas where people are going to be working from home.

“There’s so many ifs and buts and variables out there, but it could turn out to be a very good deal.”

Mark Brumby told MCA he presumes the Hawthorn business will get folded into Admiral, in order to achieve the incremental cost savings that would have made the acquisition appealing.

While Davies’ future at Hawthorn was not confirmed either way, the language in the announcement, where he wishes Admiral CEO Chris Jowsey and Hawthorn’s new owners “every success for the future”, would suggest his work at the company is complete, having secured the sale for parent company NewRiver.

Yet having built up the company, and said he would resign as CFO of NewRiver, there could be an argument to keep Davies on in some capacity.

“The higher you get in Hawthorn, the less likely the people are to stay on [post acquisition],” Brumby said.

“Having said that, you do sometimes get a takeover in order to get the management.”

In any case, the deal puts Admiral in prime position in the tenanted pub market, Brumby said.

“They are at the top table. Admiral will be one of the big three or four players now”

NewRiver had already announced an intention to exit pubs to concentrate on retail, a position which gave Admiral a circumstantial position of strength in making the winning bid.

Brumby speculated whether Admiral might now consider an IPO listing of its own.

“There are often one or two things you can level against some IPOs which is that they are too small too embryonic or too early stage. Admiral is none of those things. It is big, it’s mature. Some of the units are hundreds of years old, and the structure of the businesses is mature, so it fits the bill for a stock market listing.”

Almost as interesting as the company that did buy Hawthorn are those who did not.

“It didn’t go to Stonegate or Marston’s or to Rooney Anand or to any of the other people we’ve heard recently are interested in picking up assets,” Brumby added.

“These are £300k a pop, relatively modest pubs, so they will do well with Admiral. They deserve each other.”