Inside Track by Mark Stretton
Pragmatism is a necessary virtue in business. Only a few weeks have passed since Bob Ivell aborted talks to sell Regent Inns to Alchemy Partners after the two parties were unable to thrash out a mutually agreeable price. But last week seller turned acquirer as Regent's executive chairman put the finishing touches on a £26m deal to buy the Old Orleans bar-restaurant brand from Punch Taverns. In doing so, Ivell has added a much-desired third arm to the business, which also operates Walkabout bars and Jongleurs comedy clubs, taking it further into the growth sphere of food. Despite its very different sales of mix of 50% food, 50% liquor, Old Orleans is a good, symbiotic fit for Regent. The company aims to bring some of the high energy, party ethos evident in its other two brands back to Old Orleans. The purchase is also a “pragmatic” move because Old Orleans is a business that Ivell put up for sale in 2001 when he was head of Scottish & Newcastle Retail (S&NR). In my discussions with Ivell, he maintained that he always believed there was inherent value and growth in the brand, and was not an overly-enthusiastic seller. But given that at the time he had just persuaded the main S&N board to give him £1.14bn to buy the Greenalls pub business, and in doing so had saddled the business with high debt levels, it was again, a pragmatic move. There was also a desire to demonstrate that value could be created for the company and its shareholders through building, developing and selling pub and restaurant brands. In the event, buyers in the market did not match S&NR's £30m valuation so the business was retained, acquired by Spirit in 2003 as part of the £2.5bn purchase of S&NR, and in turn Spirit was last year subsumed into Punch, which has now dissected and sold off various parts of the managed house division, hence this sale. The business is not broken, but it is unloved, and if anyone understands what is required it will be Ivell. It needs a little repositioning but any capital expenditure requirements will be largely cosmetic. There is also the opportunity to switch a handful of sites between the three Regent brands. According to Ivell, the Old Orleans food menu has been boiled down to a “ridiculous” size, featuring just “burgers, burgers and burgers” so there is clearly some necessary food development work to undertake. There also plans to refocus on cocktails to drive drink sales, particularly in the after work day-part of 5pm to 8pm. Mainly it will be a case of reasserting some focus and pride into the site operators. The business has stagnated in the last five years. In 2001 ebitda was £5.4m, last year to August it was £5.3m. Average sales per site per week were £19,400 in 2001 against £22,000 today, a rise which is just about in line with inflation. At a time when senior executives are debating if the current prices being paid for companies is peaking, the £26m price tag, which equates to five times 2005 underlying profits (ebitda), seems good. That said, profits are declining. Half-year ebitda to February 2006 was £2.3m. Given that hot weather and world cups are not great for such businesses, the second half is not likely to have improved. But I would not bet against Ivell on arresting and reversing the decline. Despite the current issues, the acquisition has provided Regent, which was starting to look a little directionless, with more balance, reducing the company's exposure to the volatile late-night market, and more importantly, potential growth. It will be interesting to see if any further acquisitions follow. It is thought that Regent has held talks with Corney & Barrow. Also, there are still suitors in the market, such as Laurel, Novus and Alchemy, and it will be interesting to see if this transaction makes the company more, or less, attractive.