Punch Taverns plc

Jubilee House, 2nd Avenue
Staffordshire DE14 2WF
United Kingdom
Telephone: (
+ 44) 1283 501600
Fax: (
+ 44) 1283 501601
Web site: http://www.punchtaverns.com

Public Company
Employees: 550
Sales: £638 million ($1.1 billion) (2004)
Stock Exchanges: London
Ticker Symbol: PUB
NAIC: 722410 Drinking Places (Alcoholic Beverages); 424820 Wine and Distilled Alcoholic Beverage Merchant Wholesalers; 531190 Lessors of Other Real Estate Property

Punch Taverns plc has worked its way to the top of the United Kingdom's pub market. Based in Burton-upon-Trent, Punch owns a portfolio of more than 7,800 pubs located throughout England, Wales, and Scotland, making it the country's number two pubs operator, trailing Japan's Nomura. Punch specializes in leased and tenanted pubs. Under this arrangement, the company owns the pubs, which are then rented to pub operators. The company provides marketing, design, training, and other support services to its pub operators, who in turn agree to purchase beers and ales exclusively from Punch. Punch also operates a Machines division that takes charge of vending and amusement machines located in the group's pubs. Formed in 1997 in order to acquire Bass Plc's pubs estate, Punch has grown through a series of massive acquisitions. In 1999, for example, the company acquired more than 2,000 pubs from Allied Domecq. Another major acquisition came in 2003, with the purchase of the Pubmaster group of nearly 3,000 pubs. The company is led by Giles Thorley and listed on the London Stock Exchange. In 2004, the group's sales topped £638 million ($1.1 billion).

Beginnings in the 1990s

The pub remained an enduring British tradition in the late 1980s, supported by another tradition, the "tied" system, in which pub owners and operators were bound by contract to purchase their beverages and other supplies exclusively from one of the country's brewers. Often, the brewers themselves owned the pubs outright. In this way, a large majority of the country's more than 50,000 pubs were owned by the brewers.

The British government decided to dismantle this system in the 1980s in order to introduce a more competitive market. In 1989, the government passed the so-called "Beer Orders," which limited brewers to the ownership of no more than 2,500 pubs each. Forced to sell off large portions of their pub portfolios, brewers were also faced with additional restrictions on the operation of the pubs they retained. Among these was a provision that obliged brewers to offer "guest beers" in their pubs. Guest beers tended to be sourced from local and regional brewers.

The legislation put into play a vast number of pubs, most of which were hived off into large-scale portfolios. The Beer Orders also created a new and highly vibrant industry in the United Kingdom, as a number of new companies appeared specializing in the ownership and management of pubs, bars, and other drinking establishments.

The loss of captive outlets for their beer sales in turn encouraged the brewers to focus on developing and expanding their beverage portfolios, spurring a massive restructuring of the drinks industries, not only in the United Kingdom but on a global scale. As companies such as Bass, Allied Domecq, Whitbread, and others grew into giant beverage groups, their pub operations were reduced to minor operations within their overall business. The limits on the size of their pub portfolios also made it difficult for the brewers to compete effectively against the growing number of large-scale pub owners. A new industry trend appeared in the mid-1990s as an increasing number of brewers now began to sell off their pub operations entirely.

Bass Plc decided to take this route in the mid-1990s and began taking bids for a portfolio of 1,428 pubs. In 1997, two successful British entrepreneurs, Hugh Osmond, a director and founder of the highly successful Pizza Express chain, and Roger Myers, who had built the Café Rouge chain of restaurants, formed a partnership to acquire the Bass portfolio for some £600 million. The Bass purchase was not the first deal orchestrated by Osmond and Myers. In November 1996, the pair had acquired the Wellington Pub Company, with its portfolio of 845 freehold pubs, from Nomura, an investment bank based in Japan that had become the United Kingdom's leading pub owner.

Prior to the completion of the sale, Bass dropped some 30 of the least profitable pubs from the portfolio. The reshuffling still left Punch with just under 1,400 pubs at the deal's completion in April 1998. Punch then launched a £40 million-per-year investment program, most of which was targeted at providing training for the group's pub operators in order to help them increase their profitability. Punch also encouraged pub owners to expand their food and catering offerings. In this way, Punch anticipated a wider industry trend in the 2000s that saw pub customers shift their consumption from purely beverages to an increasing focus on food.

While providing training, design, and purchasing support, Punch also replaced its operators' contract with a new range of contracts, providing a greater flexibility for operators in terms of their relationship with the company. At the same time, Punch moved to end the guest beer offerings at its pubs. Since the company was not a brewer, it was not bound to the obligation to offer guest beers. Nonetheless, the company's pubs continued to offer guest beers on a more limited scale.

Targeting the Pub Market Lead in the 2000s

From the outset, Punch announced its intention to take the company public in order to step up its expansion into the new century. Until then, the company sought other means of financing. In 1999, Osmond and Myers sold out most of their holding the company to American investment group Texas Pacific, which specialized in investments in the European market. Texas Pacific's share of Punch stood at 70 percent.

The sale to Texas Pacific was made in large part in support of Punch's bid to move into the U.K. pub market's big leagues. The late 1990s saw a flurry of large-scale pub portfolios come on the market as pub groups and brewers began tuning and reshuffling their pubs' operations for specific target markets and specialties.

Punch now began seeking the right fit among the many opportunities, launching an active acquisition program in 1999. The company's first purchase came in September 1999, when it acquired the 650 smaller pubs of the Inn Business group. Yet Punch was already preparing a larger acquisition. In 1999, beverage and restaurant powerhouse Allied Domecq had been in negotiations to sell to Whitbread its pub operations, some 2,300 managed and leased pubs grouped as Vanguard. When the British Mergers and Monopolies Commission blocked the sale, Punch stepped in with its own winning bid of some £3 billion.

The addition of Vanguard boosted Punch into the top ranks of the British pub sector, with more than 4,000 pubs in its portfolio, including more than 1,000 managed pubs. The company at first expected to sell the managed pubs but instead decided to have a try at pub management. In 2000, Punch began re-branding the pubs under several trial brands, including the Big Room Bar, Beerhouse, and Copper Bowl. The company also operated the Big Steak pub and restaurant brand.

Nevertheless, Punch's real interest lay in its estate of leased and tenanted pubs. In 2000, these were all brought under a single business, called the Punch Pub group. By 2002, the company had decided to refocus itself as leased and tenanted specialist and de-merged its managed houses into a new and independent company, the Spirit Group. Following that operation, the company listed its stock on the London Stock Exchange in a successful offering that valued the company at nearly £600 million.

The offering, which allowed Texas Pacific to cash out some two-thirds of its holdings, also gave Punch the capital backing to continue its acquisition program. The company's next targets were more modest, however. By mid-2003, the company had added nearly 300 more pubs, mostly through the acquisitions of Honeycombe Leisure, a portfolio of tenanted estates from Spirit Group, Greene King, and Conquest Inns, for a total price of £121 million.

Company Perspectives:

Mission Statement: Helping retailers build better businesses. Goals and strategy: In order to develop our business further, our goals are to: Maximise the overall profitability of every site; Optimise our share of the available profit; Grow through selective acquisitions.

Key Dates:

Hugh Osmond and Roger Myers found Punch Taverns in order to acquire Bass Plc pubs portfolio.
Texas Pacific group acquires 70 percent of Punch; Punch acquires Inn Business Group and Vanguard (Allied Domecq) pubs.
Punch Taverns places its leased and tenanted pubs into a new company, Punch Pubs, and begins the re-branding of its managed pub portfolio.
The company spins off its managed pubs as the Spirit Group and launches a public offering on the London Stock Exchange.
Punch Taverns acquires 283 pubs from Honeycombe Leisure, Greene King, Conquest Inns, and others and acquires the 3,115-pub group Pubmaster.
The company launches Punch Taverns as a new global identity, replacing Punch Pubs, and acquires Innspired Group.
The company sells 545 pubs from the Innspired Group and announces plans for future acquisitions.

Punch moved into the United Kingdom's number two position at the end of 2003 when it announced its acquisition of rival pub group Pubmaster for £1.2 billion. The purchase added more than 3,100 pubs to Punch's portfolio, boosting its total past 7,400.

In 2004, Punch Taverns performed a new branding exercise, changing the name of its Punch Pub holding to Punch Taverns as well. The company followed this operation with a new large-scale acquisition, buying up the Innspired Group and its nearly 1,100 pubs for £335 million. Following that purchase, however, the company reviewed its now 8,300-strong portfolio, and in January 2005 disposed of 545 pubs, largely from the Innspired estate. That sale raised some £162 million for the company.

Later in 2005, Punch launched a refurbishment effort that it expected to rollout throughout its entire network of more than 7,800 pubs, backed by an investment expected to cost some £1 million per week. At the same time, the company announced its continued interest in expanding through acquisition. In January 2005, however, the company lost out on its bid for 364 Spirit pubs. Instead, the company turned its attention toward a new possibility, the 62-pub chain of Mill House Inns, expected to come up for sale in the early part of the year. Punch Taverns intended to keep making its way to the top of the U.K. pub market.

Principal Subsidiaries

GRS Inns Ltd; Pubmaster Finance Ltd; Punch Centrum Loan Company Ltd; Punch Funding II Ltd; Punch Taverns (Centrum) Ltd; Punch Taverns (CMG) Ltd; Punch Taverns (Jubilee); Punch Taverns (Offices) Ltd; Punch Taverns (PGRP) Ltd; Punch Taverns (PM) Ltd; Punch Taverns (PML); Punch Taverns (PPCF) Ltd; Punch Taverns (PPCS) Ltd; Punch Taverns (PTL) Ltd; Punch Taverns (Red) Ltd; Punch Taverns (SPML) Ltd; Punch Taverns (VPR) Ltd; Punch Taverns Finance plc.

Principal Competitors

Enterprise Inns Plc; Spirit Group; Limited Compass Group PLC; Whitbread PLC; Compass Roadside Ltd.; J D Wetherspoon PLC; Wolverhampton and Dudley Breweries PLC; Mitchells & Butlers plc; Greene King PLC; Luminar PLC; Ascot PLC; SFI Group PLC.

Further Reading

Duckers, John, "Punching Above Its Weight," Birmingham Post , February 25, 2005, p. 24.

——, "Raise Glass to Pounds 3.5m," Birmingham Evening Mail , March 10, 2005, p. 62.

Fuquay, Jim, "Fort Worth, Texas-Based Group Buys British Pub Owner," Knight Ridder/Tribune Business News , May 19, 1999.

Hall, Amanda, "Pleased as Punch," Sunday Telegraph (London), May 12, 2002, p. 9.

Hobday, Nicola, "Punch IPO Hits Comeback Trail," Daily Deal , May 21, 2002.

Hope, Christopher, "Pubs Group's About-turn Gives New Heart to Nervy IPO market; Punch Taverns Relaunches Flotation at Lower Price," Herald (Glasgow), May 21, 2002, p. 19.

Johnson, Andrew, "Better Late Than Never for Punch in 600m Knockout," Express (London), May 23, 2002, p. 68.

Maitland, Alison, "Entertainer Unafraid of Confrontation," Financial Times , March 24, 1999.

"Punch Taverns Buys Pubmaster Estate," Caterer & Hotelkeeper , November, 13, 2003, p. 12.

Waller, Phil, "Punch's Growth Loses Fizz." Birmingham Post , January 27, 2005, p. 25.

Walsh, Dominic, "Punch in U-turn over Pubs," Times (London), September 8, 1999, p. 25.

——, "Punch Keen for Acquisitions," Times (London), January 27, 2005, p. 61.

Waples, John, "Punch Sets up Whitbread for Pounds 3bn Knockout Blow," Sunday Times (London), July 4, 1999, p. 1.

Wheeler, Brian, "Punch Develops Branded Pubs from Allied Estate," Marketing Week , June 8, 2000, p. 9.

—M.L. Cohen

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