Stonegate Pub Company has agreed to acquire Ei Group in a cash deal valuing the listed pub group at £1.27bn.
The deal gives EIG an enterprise value of £2.96bn - a multiple of around 11.4 times EIG’s underlying EBITDA of £261m, adjusted for the disposal of 370 commercial properties.
EIG shareholders will be entitled to receive 285 pence in cash per share under the terms of the acquisition - a premium of approximately 38.5% on yesterday’s closing price of 205.8 pence.
Announcing the deal to the Stock Exchange, the boards of EIG and Stonegate said there were strong strategic reasons for combining the two groups, with their complementary portfolios and skills.
EIG is the largest owner of pubs in the UK with more than 4,000 properties across England and Wales. It has three business units - publican partnerships, managed pubs and commercial properties.
Stonegate is a managed pub company has a national estate of more than 765 operating outlets, including the Slug & Lettuce and Walkabout brands. It began trading in November 2010 following the acquisition by Stonegate of 333 pubs from Mitchells & Butlers and has since grown in size and scale through a series of strategic acquisitions.
Stonegate has invested more than £350 million into its estate since 2010, including £71 million in 2018, and has a track record implementing and integrating strategic acquisitions.
The Stonegate senior management team have experience running managed and tenanted pubs and would seek to continue EIG’s existing strategy, according to an announcement on the stock exchange.
Stonegate said it would continue to invest in the EIG estate and ensure that the rights of tenants and partners are fully safeguarded and supported.
EIG has been advised by Deutsche Bank and Rothschild & Co and will recommend shareholders vote in favour of the acquisition
Robert Walker, chairman of EIG, said: “In 2015 we set out a new strategy. During the past four years we have made great progress in its execution and have delivered a significant increase in value for our shareholders. The management team have done an outstanding job and the Acquisition, at a significant premium, is only possible because of the work that they have done and what has been achieved. The Acquisition delivers the future value of the strategy for our shareholders and secures an exciting future for our tenants and employees by creating the leading managed and tenanted pub company in the industry.
“The commercial benefits of combining the companies are compelling. Stonegate is committed to continuing to invest in the business for the future benefit of the combined business, tenants and employees. The EIG Board believes that this is a combination it can recommend with confidence to shareholders and stakeholders alike.”
Ian Payne, the Chairman of Stonegate, said: “It is an exciting prospect to bring EIG and Stonegate together to create a diversified pubs group with significant industry expertise.
“At Stonegate, we have an established track record of running successful pubs throughout the UK - with over £350 million having been spent on capital expenditure at Stonegate since it began trading in November 2010. We plan to leverage our existing managed house infrastructure, portfolio of formats and access to capital and invest in the combined estate for the benefit of all stakeholders.
“We look forward to working with EIG and its publicans to support future growth and create stronger pubs at the heart of communities across the UK.”
The acquisition is subject to shareholder and regulatory approval.
The acquisition will be financed by equity from Stonegate and its owner TDR Capital, as well as financing from the AlbaCore Funds, Barclays, Goldman Sachs Bank USA and Nomura International.