UK pubs come back as international investors pile in

Most older Brits grew up with ‘going down the pub’ as a fixed ritual in everyday life. But all of this changed in the past decade, and pubs have been seeing fewer and fewer regular clients – the ban on smoking indoors has also taken its toll.

Then there came the pandemic, and its lockdowns.

The result:  £8.2 billion in trade was lost, and 2,000 pubs have closed permanently.

Just as the pub appeared to be going the way of Morris dancing, and the big pub-owning companies like Youngs and Fullers were seeing heavy losses, pubs attracted the attention of international investors.

UK pubs, for a long time seen as a dying sector, are coming back as private equity investors are making aggressive moves to purchase what they see as distressed assets.

The RedCat Pub Company, which was established earlier this year, is leading the charge. RedCat was set up by former Greene King chief executive Rooney Anand, with backing from Oaktree Capital Management.

The former Greene King CEO had amassed a war chest of £200 million, backed by global asset management firm Oaktree Capital, to come to the rescue of the ailing British pub sector.

Anand has gone right into a buying spree: In March 2021,  RedCat acquired 42 pubs from Stonegate Pub Company for an undisclosed sum. The sites, RedCat’s first acquisition, are spread across the country with 25 in the south east, 11 in the north of England, two in the Midlands and four in Wales. In August, RedCat bought the 18-strong Coaching Inn Group, and also acquired the New Dungeon Ghyll hotel in the Lake District.

Mark Crowther, former CEO of the pub and bar owner Liberation Group, told the press that his “phone had been “ringing off the hook with private equity firms looking to get into the sector.” Crowther said.

The frenzied interest from investors is not altogether surprising.

Investment funds have long been attracted to the operational real estate of freehold pubs, with their long-term yields.

“Operational real estate like pubs, and also hotels and student accommodation, are seen as is a great way to play the recovery in the reopening, because they’re expected to recover very quickly and get back to good profitable levels of trading performance,” Graeme Smith, of AlixPartners explains.

There are other reasons as well making pubs an attractive investment, analysts say. Hyper-local enterprises are seen, post-pandemic, as ready for growth. Historic pubs offer authenticity which is today sought-after among consumers – there is talk of ‘instagrammable moments.’

And then many pubs have rooms or other accommodation that is seen as a growth area as well, whether for long-term rentals or hospitality.

“There aren’t many businesses that have been around as long as pubs,” he says. “They operate out of a building they may have traded out of for possibly 200, 300, years. It’s a very long-term business with short-term structural issues,” Mark Sheehan of Coffer Corporate Leisure told MCA-Insights.