Patron Capital, the pan-European institutional investor focused on property-backed investments, has completed its acquisition of Punch Taverns plc (Punch).
The deal, at 180p in cash per share, values the equity of Punch at approximately £402 million and implies an enterprise value of around £1.8 billion.
In the 12 months to March 2017, the Punch estate reported underlying earning before deducations of around £172m and comprised approximately 3,200 pubs located across the UK, 96% of which are held on a freehold or long leasehold basis.
Punch operates its pubs predominantly under the tied leased and tenanted model, with a growing number of pubs operated under either a retail operating model or as free-of-tie commercial leases.
Punch is financed through two whole business securitisations: the Punch A Securitisation (approximately £770 million of gross debt secured against around 1,900 pubs) and the Punch B Securitisation (approximately £550 million of gross debt secured against around 1,300 pubs). There are also certain cash resources held across the Punch group. Punch also owns approximately 50 pubs outside of the securitisations.
The Punch A Securitisation has been sold to Heineken UK in a back-to-back transaction, which is set to complete next week, for approximately £305 million equity value (an enterprise value of around £1.2 billion). Patron will own the remaining pubs as well as the Punch Holding Group. Punch will continue to operate the Punch A pubs for Heineken for six months under a transitional services agreement.
Patron’s partner on this investment is May Capital, the London-based private equity investor and advisor with experience in the pub industry.
With a renewed level of operational and investment focus made possible by a sale of the Punch A Group to Heineken, Patron and May Capital expect to continue to pursue, and in some cases accelerate or enhance, key elements of the Punch management team’s strategy, including investing in the pubs, adapting and modernising operating models such as through the roll-out of the managed operating format, and continuing to sell non-core assets.
Patron’s equity for the purchase came from its fifth fund, which closed last summer having raised €949 million.
Keith Breslauer, managing director of Patron Capital, said: “Completing this complex deal paves the way for an exciting future for Punch as a more focused business. This is a company that has undergone a number of challenges and distractions in recent years, but has a portfolio of high-quality pubs with excellent future potential.
“We are experienced investors in the leisure and hospitality sector, having invested in and grown a range of businesses including Generator, the Spencer Hotel in Dublin and Jupiter Hotels. Under private ownership, with strong financial backing and our commitment to continued investment, Punch’s pubs and publicans will have our full support to deal with changing market dynamics and provide their customers with the best possible offer.”
Duncan Garrood, chief executive of Punch, added: “This has been a long road and we are delighted that we are now able to move forward with clarity. I am proud of the professionalism of the Punch employees during this period of uncertainty, and remain sure of their ongoing commitment as we look to an exciting future under new ownership.”