Punch Pubs has been bought by SoftBank-backed Fortress Investment Group for about £1bn, marking the latest in a string of private equity deals in the UK’s struggling hospitality sector.
The pub group said on Wednesday that Fortress had acquired all of its share capital from its current private equity owner, Patron Capital Partners, which has owned Punch since it took the company private in 2017.
Punch, which was founded in 1997 following the spin-off of Bass Brewery’s pubs, operates about 1,300 pubs in the UK. It previously had more than 3,000 pubs but sold 1,900 to Heineken as part of the Patron deal.
Two people with knowledge of the deal’s terms said it valued the group at about £1bn. Punch’s earnings in the 12 weeks to August 15 were £14.2m and it had £596m in net debt following a £600m financing in June.
Fortress, which has about $54bn under management, is one of several private equity groups, including KKR and Oaktree Capital Management, that are flush with cash and seeking deals in the hospitality sector in expectation of a rapid rebound in demand when pandemic restrictions lift.
KKR invested £300m in the budget gym group Pure Gym this week, while Oaktree has put £200m behind former Greene King boss Rooney Anand’s pub acquisition vehicle, Red Cat. Fortress also owns the US restaurant group SPB Hospitality and this month took a majority stake in the Irish hotel company Prem Group.
Pub groups that own freehold property are a particularly attractive asset for buyout groups.
It means that should trading be restricted or anything go wrong with the operating company, there would still be value in the property, said Graeme Smith, managing director at the consultancy AlixPartners.
“There is a lot of demand for hospitality . . . and for real estate investors, if you look at the different real estate classes, the pandemic has raised longer-term concerns around the likes of office, retail and some housing stock in terms of where are people going to be living,” he added.
Punch’s property was valued at £879m, according to its latest set of accounts for bondholders, and about 93 per cent of its estate is either freehold or long leasehold.
Owen Shirley, an analyst at Berenberg, said the likely rationale for the deal was that Fortress wanted exposure to the UK pub market. “Once you factor in the [value of] the assets, the valuation is relatively cheap,” he said.
Clive Chesser, Punch’s chief executive, said Fortress’ investment was “very positive news”. “Fortress is a hugely experienced investor who understands the strengths of our business and fully buys into our strategic positioning and business plan,” he said.
In July, Punch bought 56 pubs from the listed pub company Young’s.
Cyril Courbage, managing director of Fortress Investment Group, said Punch’s management had done “an exceptional job of navigating the challenges of the Covid crisis while positioning the business for long-term growth and value creation” and that Fortress would “continue to explore other opportunities in this sector and across the UK, Ireland and Europe”.
Additional reporting by Kaye Wiggins and George Hammond