Inn Partnership

Application of a new franchise business model increased tenant performance


Inn Partnership was a UK pub company selling beer to, and receiving rent from, its portfolio of tied, tenanted pubs.

Investment strategy 

Asset-Backed: Inn Partnership’s portfolio consisted of 1,240 tied, tenanted pubs across the UK, the vast majority of which were freehold properties.

Requiring Fundamental Change: The business was a non-core subsidiary for its former owners. The pubs in the portfolio could be better managed to reduce the decline in beer volumes (as a result of tenants buying beer from third parties) and improve profitability and stability of cash flows. The previous owners had introduced a relatively short-term lease offering a variety of support services to the tenants, but which added central costs without any tangible uplift in pub performance. 

Creating value 

  1. Transforming strategy

    • To recover beer volumes and margin, a high-profile policy of ‘zero-tolerance’ of lessees buying beer from third parties was introduced, enforced by remote monitoring technology.
    • The roll-out of a new pub franchise agreement offered lessees discounted beer prices and assignable leases in exchange for higher rents. Beer distribution and supply contracts were renegotiated to deliver significant cost savings through leveraging combined purchasing power across Terra Firma’s pub businesses.
    • A detailed pub-by-pub analysis of historic performance identified numerous pubs which would be more valuable in another portfolio or converted to an alternative use. These pubs were subsequently sold.
    • There was increased scrutiny on prospective tenants to ensure they had experience in running a pub or small business, with the number of pubs leased to 'multiple tenants' increasing.
  2. Strengthening management

    • The senior management team was strengthened soon after acquisition with the replacement of the CEO, CFO and the Commercial Director.
    • Efficiencies were achieved following a comprehensive operational audit by outsourcing the entire back-office and closing redundant regional offices.
  3. Developing through capital expenditure

    • More rigorous investment evaluations were undertaken which determined whether individual pubs would justify refurbishment or improvement capex (i.e. to facilitate a food offering) as well as considering alternative options such as sale either for existing or alternative use.
  4. Building through mergers and acquisitions

    • As well as disposing of non-core pubs, Inn Partnership also looked for opportunities to make acquisitions of single pubs or small packages of pubs, and in the final year of ownership it continued to acquire pubs with plans to continue to do so each year thereafter.
  5. Lowering the cost of capital to create extra upside

    • The new pub franchise agreement improved the quality of the cash flow from the portfolio by converting income from a variable form (margin on beer sales) to a fixed form (rent).

Status of Investment: The Inn Partnership investment has been fully realised. Inn Partnership was sold to a strategic buyer in February 2002.

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tied, tenanted pubs across the UK