Master builder

Tenanted pub companies are always something of an anonymous entity. With no brands, chains or rollouts, they rarely make the headlines until a sudden huge deal pops up to remind the industry just who the biggest players actually are.

In February, Pubmaster bought Inn Partnership and its estate of 1,200 pubs from Nomura for £523m. It was a huge deal and boosted the Pubmaster estate to 3,200 pubs, making it one of the biggest in the country just 10 years after its conception. Yet these corporate dealings and talk of pubs numbering in the thousands mean that it's easy to lose track of the very nature of tenanted pubs. Each business is a separate entity, run by the tenant, with a different market, concept and offering in each.

So how does a business such as Pubmaster even begin to incorporate 1,200 new pubs into an existing company framework?

Russell Cawthery is regional operations director for East Anglia and he's been busy doing just that for the new Inn Partnership estate. "It's not as difficult as it sounds, actually," he says. "It's all about getting the information and history of each pub. The licensee is self-employed so has his own history, and the area managers come with the deal as well.

"The area manager knows the licensee, and invariably appointed him to that pub in the first place. So we do go into it with immediate knowledge of what each business is like. And that's exactly what's happening with the Inn Partnership estate right now."

Crucial information Geography, Cawthery says, is the main problem. The spread of new pubs across the country means it's not easy to see each one, and gain that crucial information, as quickly as he would like. Technological developments have made it a lot easier, though. All the Pubmaster management team carry laptops that enable them to call up figures on each pub - turnover, barrelage, rents, etc - whenever they need them.

"By the end of May, the history of the Inn Partnership estate will have been transferred on to our system and we'll be able to access it on our laptops in the same way," Cawthery explains. "The IT development side of it has made a huge difference in terms of instant history and access to financial information."

The need for instant information on each new pub also serves another purpose. Pubmaster's corporate strategy is "acquire, invest and churn" - in other words, "buy them, invest in the ones we like and get rid of the ones we don't".

So with an extra 1,200 pubs to consider, what are the criteria that will influence which will be kept and which will be "churned"? "I think it's just what's sensible for the operator and the landlord," Cawthery says. "There's no preconceived idea of whether one comes or goes. In the past, we've kept and developed sites that other people have written off.

"Sometimes they require investment or a change of licensee, but I suppose the bottom line is that the operator has to make a sensible living and a sensible profit - as, obviously, does the landlord. You don't know that initially when you take it on, you have to work with them for a period of time to make a judgement."

When Pubmaster bought Inn Partnership, its estate grew by 60% and this has brought other changes to the company, including the appointment of its first catering operations manager, Steve Schaffer, to oversee the food offering across all the pubs.

Schaffer acknowledges that, with each pub being a separate business, his role is different from those of his contemporaries in managed-house companies.

"I'm there to improve tenant and regional manager awareness of the food and catering market, really," he explains. "It's adding value to all the houses, so anyone who needs help has somewhere to go. We're not saying, ‘You will do this', we're just trying to make it easy for a tenant who either doesn't do food at all or is looking to upgrade their offering to come to us for ideas.

"I've got a firm belief that every pub should be doing something, but by degrees. For example, if you just want to do toasted sandwiches, then that's great."

Long-term leases There are plenty of other changes. Pubmaster has just begun to encourage long-term (20-year) leases rather than traditional shorter-term tenancies - to, as Cawthery puts it, "encourage entrepreneurial characters" as well as providing large pots of development money to invest in accommodation and catering.

So have we seen the end of big acquisitions for a while? "No," says Cawthery, "it's fair to say the corporate strategy is still to acquire. But I think there's a process of securitisation [see right] to go through and then we'll be on the acquisition trail again."

Pubmaster

1988 Brent Walker buys 384 pubs in East Anglia from Grand Metropolitan.
1989 Brent Walker buys the Tolly Cobbold brewery in Ipswich and the Camerons brewery in Hartlepool.
1991 The Tolly Cobbold brewery is sold to its management. Pubmaster is incorporated in August and starts operating in December with almost 1,000 pubs, principally in the North-east and East Anglia.
1992 The Camerons brewery and 52 pubs are sold to Wolverhampton & Dudley.
1992 onwards Through two long-term leasing arrangements, further pubs are added, taking the total estate to around 2,000.
November 1996 Managing director John Sands leads a management buyout from Brent Walker.
July 1999 The group is refinanced through securitisation - £305m is raised to repay existing debt, purchase pub freeholds and provide funds for investment in the estate. The company buys 662 pubs from Swallow Group for £125.5m.
February 2000 A secondary securitisation takes place, raising £109m.
December 2000 John Sands leads a second management buyout, backed by WestLB, Rotch and St Modwen Properties, for just over £500m.
June 2001 Pubmaster launches a hostile £486m takeover offer for the Wolverhampton & Dudley Breweries, which narrowly fails.
August 2001 Pubmaster acquires 21 pubs, mainly in Edinburgh, from Solitaire Leisure.
January 2002 Pubmaster buys Pub.Com (formerly Eagle Taverns) for £16.6m, adding a further 38 pubs.
February 2002 Pubmaster buys Inn Partnership from Nomura for £523m. This adds 1,200 pubs, boosting the size of Pubmaster's estate by 60% to around 3,200 pubs.

What's next for Pubmaster?

The consolidation of the UK pub industry doesn't look like stopping. Since Pubmaster's purchase of Inn Partnership, even bigger deals have been completed.

Last month, Enterprise Inns bought 1,860 pubs from Laurel for £875m. Enterprise also has a £175m (17%) stake in Newco, a new company formed in March to buy the Voyager and Unique estates of 4,189 pubs from Nomura.

Pubmaster will still be on the lookout for more acquisitions. The company raises funds through securitisation, a way of borrowing money secured against the cash flow of a precisely ring-fenced asset - in the case of Pubmaster, the rental incomes from its pubs. So there will obviously now be more money available from the Inn Partnership estate.

The company is also not afraid to be aggressive to get what it wants. In June 2001, it started a £486m hostile takeover bid for Wolverhampton & Dudley, a process which dragged on for more than six months until, eventually, it was narrowly beaten off.

The next big move for Pubmaster, though, is likely to be towards the Stock Exchange. Rumours of a flotation have been around for a while, but executive chairman John Sands has said publicly that he's waiting to see how Punch fares after its listing in May or June.

Any decisions by Pubmaster are likely to be made towards the end of this year or in early 2003.