Greene King’s £774m acquisition of Spirit Pub Company — the largest that the British pub sector has witnessed for more than 10 years — has finally gone through. FEJ assesses how the combined business might shape up.
It was back in 2005 when the original Spirit Pub Company was acquired by Punch Taverns and for the best part of a decade that transaction has stood as the largest that the industry has seen. But pub retailer and brewer Greene King has gone and blown that deal out the water by splashing out close to £800m on a company that it hopes will grow its share of the UK eating and drinking out markets and create a clear industry leader.
Greene King has a successful track record of acquisitions, completing 18 deals since 1999 with a total value of more than £2 billion. Spirit will arguably represent its biggest challenge yet, however, simply because of the magnitude of the business. It operates nearly 900 managed pubs and more than 430 leased and tenanted pubs, achieving sales of around £800m a year. In order to get the deal through, Greene King has agreed to sell off 16 pubs to remedy competition concerns raised by the Competition and Markets Authority (CMA). It will divest the pubs as properties, together with the relevant pub name, while in the case of managed pubs staff will be transferred.
Rooney Anand, CEO of Greene King, said the completion of the acquisition of Spirit finally brings together two of the sector’s big-hitters to create the UK’s largest managed pub company. What’s more, from a kitchen perspective around 42% of the group’s combined sales will come from food.
“Our focus now turns to building a combined business of our best brands, people, locations and processes to ensure we succeed in the eating- and drinking-out markets for the long term,” explains Anand. “As we begin this exciting new phase in our history, Greene King will continue to focus on creating a great place to work for our people, delivering industry-leading value, service and quality to our customers and maximising value for our shareholders. The acquisition will further strengthen our platform to deliver sustainable, long-term success for the benefit of our customers, our employees and our shareholders.”
Our focus now turns to building a combined business of our best brands, people, locations and processes to ensure we succeed in the eating- and drinking-out markets for the long term”
Mike Tye, his counterpart at Spirit, echoed those thoughts. He commented: “The combined business will be the largest managed pub company in the UK and a real force to be reckoned with, especially by taking the best of both businesses and creating a clear industry leader.”
Indeed, with combined revenues in excess of £2.1 billion and EBITDA of £490m on a pro forma basis, the group wields considerable financial muscle.
The tie-up will accelerate Greene King’s retail expansion plans and strengthen its position in the eating-out market. The integrated company will comprise 3,100 pubs, restaurants and hotels, including 1,800 managed pubs. It is not just about size and coverage, though. The combined business will deliver significant financial benefits that Greene King insists will allow it to build an even stronger company in the pub market place. It anticipates achieving cost synergies of at least £30m through purchasing savings linked to enhanced scale, distribution reductions and lower central costs.
The company says that the enlarged managed business will operate a well-balanced, high-quality pub portfolio with extensive national coverage, including a significant presence in the attractive London and south east region. More than a third of its estate is located in this area of the country. Leading Greene King brands include Hungry Horse, Old English Inns, Eating Inn and Loch Fyne Seafood & Grill, but the takeover of Spirit now gives it access to brands such as Flaming Grill, Fayre & Square, Chef & Brewer and Taylor Walker.
In addition, the tenanted business will materially benefit from the contribution of leased pubs and Greene King’s beer business will be in a position to exploit additional routes to market for its ale brands, such as Greene King IPA, Old Speckled Hen and Abbot Ale.
The takeover of Spirit comes at a time when Greene King’s business is showing signs of growth. Preliminary results for the year to May 3 showed the company achieved revenues of £1.3 billion in 2014, an increase of 1% over the previous year. And although operating and pre-tax profits both came in lower than the previous year, the company’s statutory pre-tax profits increased 12% to £168m.
“We have delivered good underlying growth across all parts of the business with Retail generating revenue of over £1 billion for the first time. Underlying earnings growth of over 9% has enabled a dividend increase of 4.8%, reflecting our confidence in the strength of the business and its prospects for future growth,” says Anand.
Suppliers, competitors, partners and investors will be watching closely to see how the numbers stack up once it has completed the biggest integration exercise in its 200-year history.
23 Sept 2014
Greene King confirms it has approached the board of Spirit in relation to a potential combination of the two companies.
4 Nov 2014
The board of Spirit unanimously recommends Greene King’s cash and share offer.
13 Jan 2015
Both sets of shareholders approve the deal at EGMs held by Greene King and Spirit.
26 May 2015
Greene King proposes to sell 16 pubs to address CMA competition concerns caused by the potential combination of Greene King and Spirit.
11 June 2015
Greene King waives the CMA approval condition paving the way for the deal to complete.
The acquisition of Spirit Pub Company completes.