Punch Taverns, the leading leased and tenanted pub company, was formed in 1997 by restaurant entrepreneurs Hugh Osmond and Roger Myers when they acquired the original Punch Taverns portfolio of pubs from Bass (formerly 6 Continents, now Mitchells & Butler).
Since Punch’s inception, the company has completed a string of major acquisitions. Last May, despite adverse market conditions, it pulled off a listing on the London Stock Exchange. This deal, a key part of Punch’s expansionist strategy, enabled it to raise capital to finance yet more acquisitions.
Currently, Punch is in the throes of buying its rival, the Nabarro Nathanson-advised Pubmaster, for approximately £1.2bn. This deal will enable the company’s private equity owners to exit from their investment. If the acquisition is completed successfully, it will add more than 3,100 leased and tenanted pubs to the 4,500 already owned by Punch. However, the deal is subject to shareholder approval at an extraordinary general meeting scheduled for 1 December.
Punch company secretary Neil Preston is confident that the deal will be successful and that it will not be referred to the Office of Fair Trading, because the company is also selling off around 200 pubs as part of the deal.
“We’re mindful of local competition issues, but our experience in this area makes us confident that the actions we’re taking should avoid any competition issues,” says Preston.
Punch can certainly claim to have a knockout track record. In September 1999 it bought Inn Business Group and later that month it successfully took over Allied Domecq’s UK pub estate, following the hotly contested hostile takeover battle against Whitbread.
In March 2002 Punch demerged Spirit Group Holdings (now Spirit Group Limited), the holding company for its 1,040 managed pubs. This resulted in Punch becoming a wholly leased and tenanted pubs company (a leased or tenanted pub is run by a retailer not employed by the pub company, whereas a managed pub employs the landlord).
Unusually for such a large organisation, Punch has no legal department. But this is not of immediate concern to Preston, who says he is “happy” with the existing model. “It’s about getting the most value out of external advisers rather than employing people ourselves,” he adds.
Even more unusual is that Preston, who joined Punch from Allied Domecq in 1999, is not a lawyer but an accountant. “Normally, company secretaries are lawyers. But I think that finance is also a good background because you can balance your knowledge of financial issues with the skills and the resources that legal firms have,” says Preston. “So provided you’re doing sufficient transactions so the lawyers understand your business, you can form quite a good partnership.”
Preston shares his responsibilities with Punch deputy company secretary Susan Ridd. Meanwhile, director of legal affairs Ross Jones handles issues specific to the company’s property portfolio.
Preston’s philosophy is to take a very hands-on approach during transactions. For instance, during the recent restructuring of the company’s debt and the Pubmaster acquisition, he was involved in three all-nighters in the course of a week. He argues that this commitment helps to enhance his relationship with Punch’s external lawyers. “If you sit in your own office and expect your lawyers to second guess everything that’s in your mind, you’ll become dissatisfied,” he argues. “If you work hard yourself in getting the most out of your lawyers, I think you’ll develop a good relationship.”
Since Punch does not have an in-house legal team, Preston relies on external lawyers to provide the manpower. Slaughter and May, which typically advises the company on corporate and finance deals, gets the lion’s share of the work.
Slaughters’ relationship with Punch is now managed by corporate partner David Johnson, who replaced former client partner Neil Hyman after he moved to the firm’s Hong Kong office.
Slaughters has benefited enormously from Punch’s acquisitive nature. The firm acted for the company when it bought the Bass leased pubs estate, the Inns Business Group and Allied Domecq’s pub chain.
On the latter deal, a 25-lawyer Slaughters team, led by former client partner Hyman, advised Punch on the epic hostile takeover, which involved complex manoeuvres to raise £1.3bn of debt.
On the financing side, Slaughters recently helped Punch on a groundbreaking debt restructuring. This resulted in the merger of the company’s two securitised structures. The new securitised structure covers 4,304 pubs and total gross debt of approximately £1.8bn. The structure was a mix of fixed and floating rate notes arranged by the Royal Bank of Scotland, which was advised by Freshfields Bruckhaus Deringer at Preston’s request.
The refinancing increased Punch’s cash resources by around £265m, which together with cash generated from the company’s organic business and bank facilities will provide capital for further acquisitions in the future.
Slaughters was also drafted in to advise Punch on the Spirit demerger and the initial public offering in March and May 2002 respectively.
The strength of Slaughters’ relationship with Punch was further highlighted by the fact that in the same week that the firm helped the company to complete the merged securitisation, it was also instructed to act on the Pubmaster acquisition.
In addition to Slaughters, Punch has longstanding relationships with Leeds-based Ford & Warren, which last December advised the company on the £24m acquisition of Conquest Inns from Ann Street Group, as well as Bristol firm TLT Solicitors. In Scotland the company outsources work to Campbell Smith.
Preston claims that the work is simply distributed to the firms based on geography. He adds that, since Punch has an enormous property portfolio, he finds it much more economical to use regional firms for property work.
Even though Preston inherited all of Punch’s external advisers, he is extremely happy with the quality of their advice and does not expect to change the line-up.
“We’re happy with the firms, so we don’t need to go out and have a beauty parade once every two years to decide who our corporate lawyers are to be for the next two years,” says Preston.
He adds: “Because we do so much work, the people in those firms understand our needs and our business. Also, the documents that we’re working with are fresh in everyone’s mind and therefore we have an even more effective relationship.”
Preston says Punch’s business is not under threat from the rise in popularity of chain pubs such as All Bar One and Slug and Lettuce. This is because its pubs operate within the local community and not the high street. Naturally, then, he remains upbeat about the company’s future prospects and believes that the booming pubs sector will continue to be profitable.
|Enterprise value (before Pubmaster acquisition):||£2.7bn|
|Company Secretary:||Neil Preston|
|Reporting to:||The board|
|Main law firms||Campbell Smith, Ford & Warren, Slaughter and May and TLT Solicitors|