City Pub Company plans to double its currently 34-strong estate over the next three to four years, following its planned stock market listing this month.
This morning the company – which has completed the integration of its East and West arms and will now be known as City Pub Group - confirmed its intention to raise £30m through a float on AIM. MCA revealed last month that Liberum and Berenberg had been appointed as joint advisors.
The group, which was founded by Clive Watson, David Bruce and John Roberts in 2011, expects admission by the end of the month.
Watson, who will continue as executive chairman following the float, told MCA that the move highlighted “the return of the wet-led pub”. He said that, while he understood wider concerns about the volatility of the IPO market, he believed managed pubs were still an area where the City felt confident and comfortable.
As it formally announced its float, the group revealed that an independent report by CBRE had valued its portfolio at £73.65m, not including the £7.8m Aragon House, in Parsons Green, which the group acquired in September.
Watson stressed that the group had established a track record of strong growth, with revenue and EBITDA growth representing a three year CAGR from FY14 to FY16 of 34.9% and 44.8% respectively, with an EBITDA margin of 14.7% in FY16.
Watson also confirmed that the group had acquired its seventh site in Cambridge, with the Old Ticket Office at the city’s train station due to open next year. He said the group would continue its strategy of growing through hubs, with Birmingham, Cardiff, Swansea and Canterbury all target locations.
He said trading in October and the first few days of November had been extremely buoyant – making for more sluggish trade at the end of the summer.
Watson said: “Since inception in 2011, The City Pub Group has prudently built a high quality, largely freehold, cash generative and profitable estate of non-branded pubs focussed on the needs of their local markets.
“A successful AIM listing will assist, fund and complement the Group’s proven growth strategy, enabling it to achieve its target to double the size of its estate over the next three to four years and deliver significant shareholder value.
“The City Pub Group is a vibrant, growing business with a clear strategy, strong and experienced management team and a well-developed pipeline of sites with an exciting market opportunity ahead.”
Comment by MCA editor James Wallin
“The last pub company to float was Capital in 2007 and now a decade on the baton is passed to City Pub Group”.
For a man who was one of the sector’s most vociferous opponents to Brexit, Clive Watson has refused to let the fallout from the EU referendum vote derail his plan of action for the company he co-founded in 2011. In March of last year, Watson told MCA he was confident the group would be at c35 sites and be a listed company by the end of 2017. To have achieved exactly that despite an intervening period in which the only certainty has been in uncertainty, is no mean feat.
Last week, Bakkavor, the food service company and owner of PizzaStorm scrapped its planned float, citing “volatility in the IPO market”, But Watson remains undeterred.
He told MCA: “The situation has to be seen in context – the bottom has fallen out of the casual dining sector and that has spooked a lot of people. But, the City Pub formula is something that I think the City is quite comfortable with. They understand it and they can see where it’s going. We’ve traded through hard times before and it’s proven itself to be a resilient model. The past 10 years has seen a lot of upheaval in the pub sector, with a lot of sites closing. But, what has gone alongside that, and particularly in the past five years, is the modernisation of the pub.
“Pubs now are used in so many different ways to 10 years ago and are accessible to so many more people. But, crucially, they still fulfil the roles they have played for hundreds of years. People have had enough of chains and they’re uninspired by a lot of what they see in casual dining. But, well-run, well-invested, independent pubs, with their finger on the pulse of what people want, that is still extremely attractive.”
Asked how different the market is now compared to Capital’s float ten years, Watson said: “The professionalism of pubs is probably the biggest thing. The knowledge of bar staff and the levels of customer service that you get in a pub has come on leaps and bounds. That goes both ways, because companies have had to work much harder to get the right offer for their staff.”
He added: “I think we’re in a much better place than we were with Capital. For a start, we’ve been around the block a few times since then and we’ve learnt a lot of lessons. City Pub is the same size now as Capital was when we sold it to Greene King.”
With a seventh pub due to open in Cambridge next year, is Watson worried about seen as developing a monopoly in some of his key hubs?
“It’s definitely something we have to be mindful of. Cambridge is different to some areas because it’s a really booming area but certainly I couldn’t see us having seven pubs in Winchester. London will provide us with a lot of opportunity and we still have room to grow in places like Exeter and Brighton, but we will look to go into new areas.”
On the potential to grow through group acquisitions, Watson said: “We will certainly look at small packages but the challenge is to make sure they are compatible with our values. I remember taking a package of Spirit pubs back in 2005 and, to be honest, it was a challenge.”
One obvious route for expansion, but one which Watson declines to comment on, is for a post-float City Pub Group to absorb the currently 12-strong Mosaic Pub & Dining – originally known as the City Pub EIS Fund – which shares many of the same directors, some back-office functions, and hence, a very similar culture.
For now, the group is focussed firmly on the end of November and the next chapter for City Pub Group. The key personnel will remain in their current roles with City Pub Co East and West’s respective chief executives, Rupert Clark and Alex Derrick becoming joint managing directors. The pair will retain responsibility for their original geographies while dividing up other areas of responsibilities. Watson will remain focussed on identifying acquisition opportunities – a challenge that, after 30 years in the pub trade, he clearly still relishes.
With the enthusiasm to grow and the IPO providing additional firepower, Watson and co will be raising a glass to their next 10 years in the pubs sector.