Second-guessing M&B

What is going to happen to M&B? It’s a question still being asked, despite the fact that all the various plans for a deal between Punch and Mitchells & Butlers were thrown out of the window last week. The common wisdom seems to be that in the short-term things will become a little quieter. Although, no-one really knows. Punch merging with M&B, or M&B buying Spirit all made perfect sense operationally. But deals are not just about logic. Personalities come into play, and the chemistry between Punch boss Giles Thorley and M&B chief Tim Clarke wasn’t happening. No-one said a deal would be easy, but the determination to get one away just didn’t seem to be there. M&B has said that it is still in discussions with private equity investors about a possible investment in up to 29.9% of the company. How that might pan out is also anyone’s guess. What the future will most likely depend on is M&B’s own internal strategic review and the continuing state of the UK economy. As UBS market analyst Simon French said on Thursday at the ALMR business day, a continuing downturn and increasing costs leading to falling sales and deteriorating margins for operators could be just the prompt that the industry needs for a round of consolidation in the second half of this year. That could bring both M&B and Punch back into play. With Punch’s current depressed trading position, particularly in Spirit, making it the one most in need of a deal to spread the downside. The other factor is what, if anything, comes out of the M&B review. Disposals have already been suggested. Selling its under-developed All-Bar-One and Brown’s brands would be a move that would most delight the rest of the market, particularly food-focused operators. The two are still considered market winners, which haven’t been rolled out to their full potential because of M&B’s past aversion to developing leasehold sites. Even in the current climate, All-Bar-One and Brown’s could attract significant offers from private equity. There is still cash readily available for sub-£100m deals. Of course, nothing is straightforward with M&B. In the past it has shunned offers for the two concepts, even though they did not appear to fit its objective of building a freehold-backed business. Its need for cash and continuing suspicion of the high street might now, however, make a sale more likely. Second-guessing M&B is not easy. But whether or not we have to wait until the end of the summer for more fireworks may depend on Tim Clarke staying at the helm. He has already offered to resign once over the hedge debacle that got the company into its present bother in the first place. M&B has assets worth having – its properties, its brands and not least the expertise of its operations team. Peter Martin is co-founder of M&C Report and chief executive of the Peach Factory