Private equity raises the bar with M&B bids

Just when you thought it was safe to go back into Mayfair - private equity firms emerge from hibernation...

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Last Updated: 06 Nov 2012

After a long period during which the big buyout firms have been able to do very little but sit around their posh offices while bankers screen their calls, The Times reports that Blackstone and CVC, two of the biggest operators, are currently circling All Bar One owner Mitchells & Butlers. The two firms have supposedly submitted a proposal to take a stake of nearly 30% in the pub chain, which has been effectively open to offers since the collapse of a property joint venture last year. And apparently they’re not the only ones sniffing around: fellow bigwigs Permira and Bain Capital are also keen.

The news emerged the day after M&B issued a pretty impressive trading update, the tone of which suggested that the pub chain was looking to put a few more zeroes on its price tag and encourage other interested parties out of the woodwork. Yesterday’s figures showed a 0.6% increase in like-for-like sales, thanks largely to a rise of nearly 5% in food sales. Drinks sales were down, as they have been at most pub operators, but overall M&B seems to be doing better than most of its peers. And although it was cautious about the coming months, hopes are high that sales will start to creep up again once England gets used to the smoking ban (as has happened north of the border).

The fact that these private equity firms are starting to invest again, after several months of sitting on their hands, could be a sign that we might actually be getting somewhere near the bottom of the market – i.e. prices have fallen so far that assets suddenly start looking cheap (of course it could also be a sign that these private equity whizz-kids are just bored of taking long lunches and working on their golf handicaps, but we prefer the glass-half-full interpretation).

Of course these firms have always had money to spend – most of them raised huge funds in the last couple of years, so they’re sitting on big piles of cash. The problem has been that the banks won’t lend them money, largely because the credit crunch has meant they’ve not been able to sell on all the loans they made to these firms last year. However, this debt has now become so cheap that the private equity firms are starting to buy it back at a big discount. Quite neat when you think about it: borrow loads of money from the banks until they fall over, then buy it back on the cheap - these firms certainly know how to make money...

On the other hand, if it helps to safeguard our pub trade, we’re prepared to accept that they’re performing an important public service...

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