Patron Capital has completed the acquisition of Punch Taverns in a deal that values the UK pub chain at £1.8 bn (€2 bn), and simultaneously sold on 1,900 of the 3,200 premises to brewer Heineken.
Patron is a pan-European institutional investor focused on property-backed investments which worked with Heineken to secure control of Punch and its real estate.
The deal, at 180 pence in cash per share, values the equity of Punch at £402 mln. This implies an enterprise value for the business of around £1.8 bn.
Punch was founded in 1997 and was for a time the largest pub group in the UK. But beset by debt and organisational concerns the group has slipped to third place in more recent years.
Punch's financial position is, however, improving and its extensive pub network remains attractive. Patron noted that the Punch estate reported underlying EBITDA of around £172 mln.
The property portfolio comprises 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.
Securitisations
Punch is financed through two securitisations: the Punch A Securitisation that comprises £770 mln of gross debt secured against around 1,900 pubs, and the Punch B Securitisation with £550 mln of gross debt secured against around 1,300 pubs. Punch also has cash resources held across the group, and owns 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 by early September, for £305 mln equity value, an enterprise value of around £1.2 bn. 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 in this investment is May Capital, a London-based private equity investor and advisor with experience in the pub industry.
Fund
Patron's equity for the purchase came from its fifth fund, which closed last summer having raised €949 mln.
'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,' said Keith Breslauer, managing director of Patron Capital.
'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.'
Patron Capital and May Capital were advised by N M Rothschild & Sons in relation to the acquisition and subsequent back-to-back transaction with Heineken.
