Stonegate’s latest acquisition sees it become the UK’s biggest pub operator with the £3bn takeover of Ei Group. CEO Simon Longbottom speaks to MCA about its track record of acquisitions and investment, experience in leased and tenanted pubs, and why the deal is a vote of confidence in a pub sector.
Even for an acquisitive pub company like Stonegate, the proposed purchase of Ei Group makes its previous deals pale in comparison.
Under the agreed terms, the 765-strong Stonegate takes over the more than 4,000-strong EiG, multiplying its estate five-fold.
Yet while Stonegate chief executive Simon Longbottom acknowledges with a hint of irony that “these things don’t happen by accident”, he portrays the latest headline grabbing announcement as part of tried-and-tested strategic rationale, in another characteristic piece of understatement.
Speaking to MCA yesterday morning, and apologising for being “a bit vanilla” (the directors are bound by Takeover Code), Longbottom pointed to the TDR Capital-owned company’s track record.
“It’s a similar strategic rationale,” he says. “We have a record of buying businesses and investing heavily in pubs. This is similar thinking. We see a complimentary portfolio of pubs and skills, whether that’s in leased & tenanted or in managed.
“This is our 12th deal, we’re well practised at acquisition and integration, as well investment - in the last three years we’ve invested £200m across the estate.
“We are confident in our model that we have substantial funds to be able to invest and access to capital,” he adds. “That’s definitely part of the strategic rationale.”
While Longbottom says it is too early to be drawn on what this investment will look like, or how the shape of the group will evolve, he and chairman Ian Payne are familiar with EiG’s estate.
“We’ve spent time in the business. Ian used to run the estate. We know the pubs well. We admire what Simon [EiG chief executive Simon Townsend] has done. The results are there. For the first time he has got net income growth despite disposals, so the business is travelling well.”
This familiarity, as well as their CVs in leased & tenanted, ease their takeover of EiG’s large estate – the biggest in the UK.
“Ian and I have both been part of big leased & tenanted companies in the past, and we go into it with full knowledge that tenants are a very important part of the equation.
“We will look to transfer some of our managed know how and skills right across the business, so we are competitive across the market.”
The future balance of the new pub estate remains an open question, though Longbottom explains they will evolve Townsend’s strategy, and “find the right model for each asset, and invest behind that”.
“We see the enlarged group having a strong leased & tenanted business, a strong managed business,” he says.
“The good news is we’ll have more access to capital with which to invest in pubs.”
In terms of the wider picture for the sector, Longbottom sees it as a vote of confidence in a sector recovering from ten years of closures.
“It’s a great story for local communities, and it’s great story for the high street, in terms of investment into pubs, and our track record investing in people.”
EiG’s Craft Union pub company and managed experts platform are singled out for praise by Longbottom, offering a hint as to which parts of the business he sees particular value and learning opportunities.
Meanwhile he sees no reason to anticipate any hiccups with the deal.
“We’ve done our homework when it comes to antitrust,” he says. “We’re confident it’s a compelling offer, and the fact it’s been unanimously backed by EiG is a great start.”
For a company known for its acquisitions, and which failed in its attempt to buy Revolution Bar Group in 2017, was Stonegate targeting EiG?
“We look at everything that comes to the market,” Longbottom offers. “It wasn’t a particular target we had. But it’s something we talked about and thought about. We had been observing and admiring what they’d been doing, and we thought putting the two together gave us a compelling opportunity.
“The combination of businesses will be great on a number of levels, with customers, tenants and communities at the forefront.”