Stonegate Pub Company and Ei Group (EIG) have announced they have reached agreement on the terms and conditions of a recommended all-cash acquisition of EIG. The acquisition is expected to become effective in Q1 of 2020.
The acquisition values EIG’s entire issued, and to be issued, ordinary share capital at approximately £1,272.7m. The terms of the acquisition imply an enterprise value of £2,969.7m and a multiple of approximately 11.4 times EIG’s underlying EBITDA of £261m for the financial year ended 30 September 2018, adjusted for the disposal of 370 sites.
EIG and Stonegate both believe that there are strong strategic reasons for combining the two groups with their complementary portfolios and skills, and that this combination has the potential to deliver benefits to customers, tenants, employees and other stakeholders.
EIG is the largest owner of pubs in the UK with over 4,000 properties across England and Wales. EIG has three business units – Publican Partnerships, Managed Pubs and Commercial Properties.
Stonegate is a managed pub company and has a national estate of over 765 operating outlets. Stonegate began trading in November 2010 following the acquisition by Stonegate of 333 pubs from Mitchells & Butlers and has since grown in size and scale through a series of strategic acquisitions.
Stonegate is an experienced managed house operator with a track record of investing in its pub portfolio and driving strong financial results. Stonegate has invested more than £350 million into its estate since 2010, including £71m in 2018.
In 2018, Stonegate won a record five awards at the Publican Awards, including as Best Pub Employer, Best Managed Pub Company and Best Community Pub Operator.
Stonegate has a proven track record for successfully implementing and integrating strategic acquisitions. Today, Stonegate has a highly diversified offering within the UK pubs sector, with a multi format strategy serving a wide range of customer demographics and consumer trends.
Stonegate recognises the significant work undertaken by the EIG management team to refine and enhance the EIG pub portfolio, including the important strategic move to develop a managed pub model alongside EIG’s core tenanted pub business and the formation of a free-of-tie Commercial Properties portfolio.
The Stonegate senior management team have extensive experience of running managed and tenanted pubs and would seek to continue EIG’s existing strategy, which it believes would be enhanced by Stonegate’s nationwide managed house infrastructure and portfolio of complementary formats.
Stonegate recognises the importance of EIG’s tenants and partners to the success of the business and looks forward to working with those tenants and partners to continue the successful development of the EIG estate. It expects to continue to invest in the estate and ensure that the rights of tenants and partners are fully safeguarded and that tenants have the necessary support to provide the best possible consumer proposition to customers.
With greater scale and diversification, Stonegate 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, which would be to the benefit of all stakeholders including tenants, employees, customers and local communities.
In May 2015, EIG embarked on a new strategy to develop optionality across its estate, strengthen its balance sheet through deleveraging, and efficiently reinvest disposal proceeds in order to support the core estate and optimise value for EIG Shareholders. This strategy has delivered a significant increase in value during this period.
Stonegate has a proven track record for successfully implementing and integrating strategic acquisitions. The EIG Board acknowledges that there are strong strategic reasons for combining the two groups which would create the opportunity to generate incremental benefits as a combined business that would not be available to EIG on its own.
Robert Walker, the Chairman of EIG, said, “In 2015 we set out a new strategy. During the past four years we have made great progress in its execution and have delivered a significant increase in value for our shareholders.
“The management team have done an outstanding job and the Acquisition, at a significant premium, is only possible because of the work that they have done and what has been achieved.
“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.
“The commercial benefits of combining the companies are compelling. Stonegate is committed to continuing to invest in the business for the future benefit of the combined business, tenants and employees. The EIG Board believes that this is a combination it can recommend with confidence to shareholders and stakeholders alike.”
Ian Payne, the Chairman of Stonegate, said, “It is an exciting prospect to bring EIG and Stonegate together to create a diversified pubs group with significant industry expertise.”
“At Stonegate, we have an established track record of running successful pubs throughout the UK – with over £350 million having been spent on capital expenditure at Stonegate since it began trading in November 2010. We plan to leverage our existing managed house infrastructure, portfolio of formats and access to capital and invest in the combined estate for the benefit of all stakeholders.
“We look forward to working with EIG and its publicans to support future growth and create stronger pubs at the heart of communities across the UK.”