Inside Track by Peter Martin
Will Mark Jones, chief executive of Yates Group, soon achieve his ambition – to be a leading player in the consolidation of the high street? In recent weeks, Jones has been talking up the need for consolidation in the high street pub and bar market, while at the same time, presumably, deep in negotiations for a management-buyout at Yates. Last week, Yates announced that it had received an approach from American private investment GI Partners and that it had appointed a committee of independent directors to act for the board - a sure sign of an mbo in the offing. Confirmation is expected with Yates preliminary results on Wednesday. There is always the chance of a rival offer – ‘done deals’ at PizzaExpress and Ask have both been derailed at the last minute – but Jones and his team should be favourite to take the group private. If Jones’ PR is anything to go by the plan for Yates and GI Partners will be to go after other "struggling" high street players. Regent Inns, with its Walkabout brand, and SFI, with Slug & Lettuce its prime property, would be obvious targets. Laurel’s high street estate, with the Hogshead operation, might be another candidate once its community pubs have been disposed of. Laurel’s management, of course, might have different ideas, probably wanting to play the consolidation game themselves. The logic for bringing together these high street businesses, then stripping out management and head office overheads, is sound. But if it’s such an appealing option, why hasn’t it been done already? The obvious problems are property valuations and the intrinsic profitability of high street bar businesses caught up in a nasty discounting war. GI Partners is known to like real-estate backed deals. With Yates there appears some upside – its net assets after debt are valued at £117m against a share price value of just over £80m. But the expensive leases that come with most managed high street pub sites may look less attractive. Another difficulty with branded bars is that although they can throw off a lot of cash they also eat-up plenty in the shape of reinvestment to keep them at the cutting edge. Finding the profit is not always easy. Linked with this is the fierce competition at the "value" end of the high street. JD Wetherspoon with its Lloyds No 1 bar brand has been cutting a swathe through much of the competition with its renowned price-focused professionalism. When it comes to price, it’s hard to argue with commercial muscle, which means the big winners are always likely to be the likes of Wetherspoon, Spirit Group, with its "best value" ethos, and a rejuvenated Luminar. Differentiation of offering is the one real counter, which Barracuda seems to be playing well with its Varsity student bar chain. Barracuda, which has emerged as an astute player, may well prove to be Yates’ biggest rival. Yates knows the pressures well. Latest like-for-like sales at its core Yates bars were down 3.9% at the last reckoning. Even the invested "21st Century Yates" bars only managed a 1.7% rise. Where the group has seen growth has been in its 20-strong Ha! Ha! cafe bar chain where lfls were up 3.7% at the last count. The premium, more food-focussed, end of the high street might then seem a better bet. Will that mean it looking at the likes of Living Room or even moving into the La Tasca bar territory? Laurel must also have its eye on Living Room, as it already runs a joint venture with Living Ventures, Living Room’s parent, to run the Prohibition chain. Of course, why risk playing in the high street at all when there are apparently richer pickings in the suburban food and community pub sectors? That’s where the likes of Mitchells & Butlers are looking. Mark Jones obviously has his own plan. He has worked hard to raise his market profile this past year, now the market will see if he can be the driving force he obviously has ambitions to be. There is, however, the small job of signing off his mbo first.