Stonegate, the UK-based operator of pub brands including Slug & Lettuce and Yates, is to buy rival Ei Group in a deal estimated to be worth £3bn (€3.34bn).
Ei Group is the largest owner of pubs in the UK, with over 4,000 sites across England and Wales. It was previously known as Enterprise Inns and since reforms to the pub industry regulations in 2016 has focused on building an estate of managed pubs to complement its core business of tenanted and leased sites.
Stonegate, all of whose sites are managed, has 765 pubs and is backed by TDR Capital. The business has gradually grown in size since Stonegate began trading in 2010 when it bought 333 pubs from Mitchells & Butlers.
Its offer for Ei values the business at £2.97bn (€3.3bn) including debt, which represents 11.4 times Ei Group’s underlying earnings before interest, taxation, depreciation and amortisation (EBITDA) of £261m (€290.4m) for the year to 30 September 2018.
Stonegate said it recognised Ei Group’s management team’s effort to refine the Ei Group portfolio and develop a managed model alongside its core tenanted pub business, as well as the formation of a free-of-tie commercial properties portfolio. It said it would seek to continue the existing strategy and added that with greater scale and diversification, the combined group would be better placed to compete in what is expected to be a challenging environment for the foreseeable future.
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 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
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.”