PE firms circle S&N pub estate

More than half a dozen private equity firms have expressed an interest in acquiring Scottish & Newcastle’s 1,450 pub estate.

Scottish & Newcastle, the brewer based in Edinburgh, has confirmed plans to sell its managed pubs business to the highest bidder with the announcement that it has sent out details of the estate to potential buyers.

 

The managed retail pub business has a reported value of around £2.3bn (E3.3bn).  The proceeds of the sale would likely be used to improve the group’s cash flow.

 

Several private equity firms have expressed an interest in acquiring the unit in addition to several trade buyers. Kohlberg Kravis & Roberts, Cinven, BC Partners, Terra Firma, The Blackstone Group, Permira and Sun Capital Partners are among the interested parties in submitting bids for the business. Deutsche Bank and UBS are coordinating the auction on behalf of S&N.

 

Earlier this year, S&N confirmed that it was looking at ways to dispose of its managed pubs business, which includes the Chef & Brewer, Henry's Bar & Cafe and T&J Bernard brands. The brewery said that it hopes to complete the sale by year-end, and will seek to negotiate a beer supply contract as part of the disposal.

 

S&N had originally planned to release capital from part of the estate through a “sale and manage-back” agreement, but the group was persuaded to sell as a result of the strong interest in the unit. “During the negotiations it became clear there are a number of credible and well-funded groups with an interest in investing in managed retail estates, thus stimulating a new phase of consolidation,” according to S&N chairman, Sir Brian Stewart, in a company statement.

 

S&N’s results for the year to April showed a 15 per cent rise in pre-tax profits to £507.3m, although operating profits from the UK beer division fell 8.9 per cent to £186.1m.

 

It is anticipated that private equity firms from across Europe and the US will join forces to bid for the pub estate. In Europe’s most recent multi-billion euro auction, around twelve private equity firms grouped into four bidding consortia to bid for Seat Pagine Gialle, Italy’s telecom directories business, which was ultimately sold to BC Partners, CVC Investitori Associati and Permira in a deal worth more than E5.5bn.

 

As well as joint bids from private equity syndicates, there are also likely to be advance from trade buyers teaming with financial investors. Mitchell’s and Butler, the pubs unit of the recently split Six Continents group, and Laurel Pub Company, the portfolio business of Morgan Grenfell Private Equity, are also expected to bid with backing from financial investors.

 

In March, Mitchell’s & Butler was itself the subject of private equity interest, with BC Partners and CVC Capital Partners among the interested parties. BC Partners later had a £2.8bn indicative offer for the business rejected by Six Continents.