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Growth of the Barracuda

26 November 2002 by

When Mark McQuater says he has a busy year ahead of him, a scene of near bedlam springs to mind. This is the man, after all, who from nothing has grown his licensed business, the Barracuda Group, to 130 pubs in two years.

In the last two months, the group has opened pubs under various brands in areas as diverse as Sevenoaks, Didsbury, Sidcup, Hereford and Birmingham. And while the affluent commuter town profile suits Barracuda's present strategy, the opening in Birmingham marks a departure from a low-key to a more aggressive profile.

The third Barracuda Bar in Birmingham is sited on Hirst Street, a competitive circuit where rents are £17-20 per sq ft. It will only do this where market conditions and the right demographics prevail.

"We are aiming to open around 20 pubs a year from our existing cash flow, but will also bid for packages," says chief executive McQuater. "People have had difficulty assembling the sort of package we want to buy. But things will shake out next year as these businesses come to a break point. We think there is quite a busy period ahead of us in the coming year," says McQuater.

This voracious appetite marks the group from other pub firms.

In a 10-week period at the end of 2000, Barracuda completed two major deals - the £50m purchase of 35 pubs from Enterprise Inns and the £37m acquisition of the Ambishus Pub Company, with 61 bars. It is almost unheard of in equity for a business to be separately funded for two such big deals in rapid succession.

Although few outside the trade have heard of Barracuda, by Christmas the group will have as many units as Yates's.

To feed this appetite, the company has heavyweight backing in the form of PPM Ventures, the private equity arm of the Prudential. McQuater's previous incarnation was as a director of NatWest's venture capital division and his contacts in the world of private equity are impeccable.

Raising capital proves difficult
Apart from the six-strong board, including McQuater, PPM is the only external shareholder. The chief executive believes this is the right structure at the moment as quoted businesses are finding it hard to raise capital in the present climate. Nevertheless, he does not write off the possibility of an initial public offering, admitting he will consider it in "a couple of years".

But to date, PPM has shown itself more than willing to put the funding forward for Barracuda's acquisitions as and when the purchase fits into the group's overall strategy. In its two years of existence this approach has demonstrated a strong underlying profitability.

For the period from 17 July 2000 to 29 September 2001, the company reported a pretax profit of £32.7m on sales of £47.4m.

McQuater sees the group as filling a gap in the market for a mid-sized operator holding between 200 and 500 units. "Big enough to do the big deals, but not a super-tanker," he states.

On the road to this objective were a number of acquisitions, starting with the Enterprise Inns deal in the summer of 2000. Then followed the Ambishus deal, with its flagship Smith & Jones brand.

In September last year it bought 50 pubs and bars from Wolverhampton & Dudley, including 22 Varsity bars which are aimed at the student market. In addition, 11 of those were TP Woods pubs, which are mostly to be incorporated under the Barracuda umbrella.

Fattening the calf?
When pushed on whether he was fattening up the calf for slaughter, he will not be goaded into saying so. Whilst it would not be in his interest to divulge, there is also a genuine impression he is enjoying his work too much at the moment.

"We are still a young, emerging company that is in the process of building up its profile. We could get to 302 pubs in two years, but it is all about the quality: a lot of people had their fingers burned by buying the wrong pubs. Where we have won through is by picking the cherries off the top of the breweries," he claims.

Nevertheless, his reference to not wanting to be a super-tanker could equally refer to his desire to be able to change direction, and at speed if so desired.

He continues: "When we get to 300 units, the idea is to reassess. We might then want 500, or long before that point we may want to invent a new brand." He adds that one of the benefits of being with the Pru is that they don't have the same time constraints as smaller funding bodies that have to grow by a certain date and move on.

So for the present, the aim is to develop, acquire and operate more bars. As ever, McQuater is holding his cards to his chest. "We have never said what we are targeting: in the last three deals nobody knew we were in the bidding. We act and then talk, not talk and then act."

As the group has a flexible mix of brands from high street bars to more upmarket gastro-style pubs, it could literally look anywhere for its next acquisition. Killian Morris of Davis Coffer Lyons says: "They would look at any package that might come on the market through the former national breweries.

"But in terms of independent pub companies, any further churn from the likes of Wetherspoons, Regent Inns or Wizard Inns would suit them better than disposals coming out of tenanted pub estates, such as Voyager, Unique or Enterprise Inns," says Morris.

In addition, its purchase of the Smith & Jones brand fairly much injected a new lease of life into the enterprise. There are many entrepreneurs in the market who, at any time, would consider a disposal - especially if they operate fewer than 100 units, which is considered the level at which an operator hits critical mass.

McQuater did concede that he will look for batches of up to 60 units, perhaps from a traditional pub company looking to thin out its portfolio or reduce its exposure.

Acquisition heads the agenda

The group hopes to acquire up to four Barracuda Bars, four Varsity bars and up to 14 Smith & Jones pubs. Central England, South Wales, and the South East commuter towns are the target destinations, with Scotland a goal which currently sits on the back burner.

However, McQuater did stress that the company does look at sites all over the UK, and therefore can afford to be "choosy".

Barracuda Group

First established: 2000
Number of pubs: 130
Brand sizes: Smith & Jones, Varsity, and Barracuda
Managing director: Mark McQuater

Licensed and Leisure Property Supplement, September 2002

A joint supplement by Estates Gazette and Caterer & Hotelkeeper magazine

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