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UK pub operator Young’s has agreed to buy competitor City Pub Group, which operates 50 venues across southern England in a £162mn deal, as the sector struggles to grow in the face of high interest rates and a squeeze on consumers.
City Pub Group investors will receive 108.75p in cash per share and the remainder in Young’s shares, the companies said on Thursday. The deal values City Pub Group stock at 145p per share, a 46 per cent premium to Wednesday’s closing price.
The acquisition, which will boost Young’s estate to 279 pubs across London and south-east England and cement its position as one of the biggest premium pub operators in the region, comes as the industry battles high input costs and interest rates, which have hit smaller operators particularly hard.
City Pub Group’s board, which unanimously recommended the offer, pointed to the premium offered by the deal “against the prevailing risk for small consumer-facing businesses with exposure to macroeconomic uncertainties”, noting that the company had been forced to take a “more measured approach” to expansion because of high interest rates and fierce competition for premium pubs.
High inflation and fears over an economic slowdown have led to a wave of pub closures. A total of 383 pubs shut in the first six months of the year, according to Altus Group, nearly matching the total for the whole of last year. In September, the number of licensed premises across the UK dipped below 100,000 for the first time, according to trade body UKHospitality.
As a more premium operator, Young’s has weathered the economic turmoil better than some of its competitors, reporting a 12 per cent year-on-year growth in adjusted pre-tax profits to £28mn in the six months to early October. Young’s half-year revenues were up 5.4 per cent to £196.5mn.
Young’s chief executive Simon Dodd noted that both businesses had “performed well in a tough trading environment recently”, adding that the acquisition would “allow us to expand our estate through the addition of a complementary, high-quality pub and bedroom portfolio, with the potential for the benefit of significant operational synergies”.
The acquisition, which is set to close in the first quarter of next year, will give Young’s access to a predominantly freehold estate in desirable locations across London and south-east England of mainly wet-led pubs. Moreover, it will increase Young’s number of bedrooms by more than 25 per cent to 1,065 rooms.
Clive Watson, founder of City Pub Group which has been listed on London’s Aim since 2017, said the board had initially rejected Young’s earlier approaches but after careful consideration decided the deal “significantly accelerates the value that could be realised in the short term by City Pubs if it were to remain independent”.
Bigger pub operators with less premium offerings looking to offload some of their portfolio have struggled to find willing buyers in recent months. Both Stonegate, which is looking to sell about 1,000 pubs, and Whitbread, which is looking to dispose of about 250 sites, have yet to find buyers after putting them up for sale earlier this year.