Stonegate Pub Company, the owner of Slug & Lettuce, has agreed to buy pub group Ei in an all-cash offer that values Ei at £3bn including net debt.
Ei group, formerly known as Enterprise Inns, is the largest pub owner in the UK with some 4,000 pubs in its estate. It struggled following 2016 reforms to the ancient ‘beer tie’ through which tenants were bound to buy their beers from the pub-owning company and has been moving more of its pubs to a managed rather than tenanted model.
Stonegate, which is owned by private equity group TDR capital, has grown through a series of acquisitions. It was founded in 2010 with the purchase of 333 pubs from the pub group Mitchells & Butler for £373m. A £102m takeover for Revolution bars in 2017 was rejected.
The offer for Ei, announced on Thursday, values the FTSE 250 company at an enterprise value of £2.96bn including debt, 11.4 times its underlying earnings for 2018. According to its 2018 annual report, Ei’s net debt stands at £2bn.
EI Group plc
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Stonegate runs an exclusively managed pub estate under brands such as Slug and Lettuce, WalkAbout and Yates. It said that its senior management had “extensive experience of running managed and tenanted pubs” and that it would continue Ei’s current strategy.
Pubs, which have been closing at an average of 15 per week according to the CGA industry tracker, have been hit by steeper wage costs and rising prices as well as a need to adapt their offer to consumers who prefer to drink less and eat more healthily.
Stonegate said it believes “that the combined group will be better positioned to compete effectively in what is expected to be a challenging operating environment for the foreseeable future.”
It has invested £350m in its estate since 2010 and said it planned to continue to put money into the combined business.
Rob Walker, chairman of Ei, said: “The acquisition delivers the future value of the strategy for our shareholders and secures an exciting future for our tenants and employees by creating the leading managed and tenanted pub company in the industry.”
Deutsche Bank and Rothschild & Co are advisers to Ei while Barclays, Goldman Sachs and Nomura are acting for Stonegate.
This article was written by Alice Hancock from The Financial Times and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to email@example.com.
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