Mitchells & Butlers’ (M&B) search for a new chief executive may be “going back close to square one” following the £100m sale of bar group Novus Leisure, whose CEO Steve Richards was a frontrunner for the job, a leading analyst has claimed.
Geof Collyer at Deutsche Bank said the sale to private equity firms LGV and Hutton Collins would have been at an exit multiple of 5.3x EBITDA based on Novus’ full-year profits for 2012 at the time of it’s half-year results.
Collyer said: “The point of this is that Novus CEO Steve Richards is widely believed to have been M&B's number one choice to become its next CEO. M&B chairman Bob Ivell – who used to work with Steve Richards at S&N Retail – has talked about having found the right person but the timing of being able to actually recruit was out of his hands – presumably because of the Novus sale proceedings.
“Had these fallen through, we believe that the probability of Steve Richards going to M&B would have increased significantly, but now we would see M&B’s search for a new CEO maybe going back to close to square one.
“In M&B’s recent Q3 IMS, the text relating to the CEO recruitment process was altered to remove any hint of progress, possibly anticipating this news.”
Collyer said the text of the sale statement suggests Richards is likely to be staying at Novus for a few years. “We have never seen Steve Richards a potential M&B successor in the near term as private equity would not be buying Novus (£100m cost) without locking the senior management who have transformed the old First Leisure bars business (previously called Urbium) into the thriving operation it is today.”
He added: “Similarly, we would have thought that Steve Richards would want (and need) to stay with the new owners to collect any financial incentives due, having run the business since May 2005, and overseen a take-private in September that year, and increased EBITDA by around 50% over the same period.”
Collyer pointed out that the Novus acquisition brings package deals of London bars and pubs to over £300m since Young’s bought Geronimo Inns in December 2010.
“The importance of the more buoyant trading conditions in the capital and its relative economic health compared to the rest of the country can be seen through not just the Novus lfls and Geronimo lfls (+9.8% for year to end April 2012) but also in Greene King (55% of pubs in London and South East), Spirit Pub Co and Fuller, Smith & Turner’s sector-leading lfls plus the commitment of Novus’ new owners to double the London business’s profitability,” he added.
