Hawthorn Leisure, the c300-strong pub operator, has appointed advisors to assess its strategic options, which could include a sale of the business, MCA has learnt.

It is understood to have appointed Sapient Corporate Finance to aid in the process, with the group believed to be valued at between £115m to £130m.

The company is currently owned by its Gerry Carroll-led management team and Avenue Capital, the US-based c$14bn (£10.6bn) private equity and property fund.

Hawthorn saw group EBITDA increase 10.1% to £9m in the 12 months to 25 December 2016, its third year of “significant growth” since its creation in May 2014. Group EBITDA is currently thought to be running comfortably ahead of that mark. In June last year, the company also completed the transition to new supply chain agreements with Marston’s (England & Wales) and C&C Group (Scotland).

Hawthorn was created with the acquisition of 275 Greene King pubs in May 2014 for £75.6m, followed closely by the purchase of 88 tenanted and leased pubs from R&LP, the pub portfolio formerly part of Robert Tchenguiz’s property empire in a deal believed to be valued at c£30m.

This was followed by the acquisition of Nectar Taverns, which operated 25 wet-led managed houses in the north-west, in a deal valued at c£10m. And In April 2016, it added to its managed arm with the purchase of 11 pubs from JD Wetherspoon in a £5.8m deal. Those sites sit under manding director of operations Mark McGinty – who worked for JDW for 17 years – supported by an executive team with significant managed house experience.

The company has since disposed of around 100 non-core pubs.

Alongside c250 tenanted pubs, Hawthorn operates c40 “managed sites”, which are operated under an operators agreement that has evolved from the Beacon Retail Partnership Tenancy Agreement that Carroll pioneered at Enterprise Inns (now Ei Group). It currently operates 125 pubs in the South East and just under 100 in Scotland.

It is thought that trade buyers led by Admiral Taverns - a deal for Hawthorn would afford new owner C&C Group further routes to market for its drinks brands - and a number of private equity groups will be interested in the company.

Talking to MCA last year, Carroll said that Hawthorn had ambitions to consolidate the UK’s pub sector further and grow into a significant player. He said that the group’s ambition is to eventually own and operate a business of between 1,000 and 2,000 pubs.

Carroll told MCA that after three years the business was now well established with an infrastructure and teams in place to operate both tenanted and managed businesses.

Last year, the company completed a refinancing of its £89.5m shareholder loans into £22.5m of equity, a £50m loan with RBS and a £17m PIK loan, which it said would help grow the business through future acquisitions.

Comment by MCA’s Mark Wingett

With a decision on the market-rent-only (MRO) option hanging over the tenanted pub sector in 2014, some would have labelled Gerry Carroll, a former managing director at Enterprise Inns, where he was responsible for 3,400 pubs, brave for looking to start a new pubco. However, one of the driving forces behind Project Beacon at Enterprise, Carroll had already spent a year seeking the right opportunity for his venture, before starting to work with Avenue Capital and setting about bringing Hawthorn Leisure to life. What followed was a whirlwind of deals and then a needed period of consolidation.

Carroll says that since then, it has been about putting in place the foundations to take the company forward to its next stage of development, investing in the group’s infrastructure, estate and people. Concepts have been tried and abandoned – Artisan Tap and the student-focused Stone & Taps, and sites disposed of. At the same time, it has kept its eye on further acquisition opportunities.

By the end of 2017, the company had invested over £10m across its estate over the past three years, which Carroll said had producing excellent returns – as its last financial year’s results testified.

In terms of growth ambitions, Carroll told me last year: “We are in a very strong position to grow the business further, both financially and in terms of infrastructure, to operate both tenanted and managed businesses. If we see an opportunity we like, we know, especially on the back of the performance of the business over the past three years, that we can go and raise the finance to go after it. Our vision is to grow our business by being famous for great people, great property and great propositions that deliver value for our stakeholders.”

And while the furore over MRO has not led to the outcome many predicted, Carroll said the company would be keeping a close eye on the fallout from the Punch-Heineken deal and that it expected further disposals from Greene King’s leased and tenanted division in due course. The ambition was always to become “a long-term player in the sector”. Carroll said: “We are innovative and nimble, and have the values in place to continue along those lines even if we grow at pace.”

Carroll is obviously hoping he will secure the investment to match his stated ambitions for the business, and to make hay while the sun shine’s on the UK’s pub sector. Tenanted pubs are currently performing in line with, and in many cases ahead of, managed pubs.

At the same time, the tenanted model has less operating risk, which along with strong cash generation, means it continues to appeal to property investors like Cerberus, Proprium and Patron. The appeal to brewers is obvious: further routes to market for their brands.

There will continue to be consolidation in the leased and tenanted market, with both “New Punch” –backed by Patron - and Admiral stating that they want to expand. Hawthorn’s performance over the last four years, its ability to operate both tenanted and managed estates put it in a prime position to play a key role in that consolidation play.