Unique Pub Company
Aquisition of pub portfolio from Inntrepreneur
The Unique Pub Co. owned a tenanted UK pub portfolio which it acquired from Inntrepreneur, another of Terra Firma’s pub businesses, in March 1999.
Asset-Backed: The portfolio consisted of more than 2,600 tenanted pubs across the UK, the vast majority of which were freehold properties.
Requiring Fundamental Change: The Unique pubs formed the portion of the Inntrepreneur portfolio unaffected by litigation or where litigation affecting the ongoing operation of the pubs had been resolved. As a newly-formed business, Unique was in need of a completely new strategy and growth plan, as well as a new management team.
- The pubs were bought by Unique following the introduction of a new lease agreement which offered price discounts to tenants coupled with an expanded choice of beer supply. The new agreements reduced the incidence of tenants buying beer from third parties rather than the landlord.
- Unique created a new supplier to the tenanted pubs, Supplyline, which professionalised the logistics and procurement capabilities of the group. Through Supplyline, Unique developed a new beer supply arrangement under which lessees were allowed to buy their beer from multiple suppliers, rather than from a sole supplier as previously.
- Unique came to be recognised as one of the UK’s top performing pub portfolios, with beer volume performance above trend, largely as a result of the company’s success in recovering volume previously lost to third party beer suppliers.
- A new senior management team was installed at the new Unique business which would be able to focus purely on developing the strategy and profitability of the pubs, and would not be concerned with any of the ongoing litigation around the pubs remaining within Inntrepreneur.
Developing through capital expenditure
- Investment was made in developing the pubs by improving food services, upgrading pub layouts and design, negotiating better supply arrangements and helping increase retail sales, in many cases with the tenant as a co-investor. Rigorous investment evaluations were undertaken which determined whether individual pubs would justify refurbishments 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.
Building through mergers and acquisitions
- The pub portfolio expanded over time, through both selective acquisitions to take advantage of economies of scale and the continuing purchase of pubs from Inntrepreneur, as litigation issues were resolved. At exit, Unique owned approximately 3,200 pubs.
Lowering the cost of capital to create extra upside
- The reduction in ‘buying out’ that resulted from the new lease agreements and the removal of the litigation threat demonstrated the previously hidden potential of the compliant pubs.
- The business improved the quality of its cash flow by converting income from beer margin to rent, through offering discounted beer prices in exchange for rental increases. Unique also converted approximately 800 low-value temporary short-term tenancies to long-term substantive leases.
- This ability to demonstrate more reliable cash flows enabled Unique to access securitisation funding at favourable pricing.
Status of Investment: Unique was sold along with Voyager, another Terra Firma pub group, to a consortium of trade and financial buyers in March 2002.