Patron Capital completes GBP1.8 billion acquisition of Punch Taverns

Patron Capital has completed its acquisition of Punch Taverns (Punch) for 180 pence in cash per share, valuing the equity of Punch at approximately GBP402 million and implying an enterprise value of around GBP1.8 billion.

Punch is an owner of tenanted pubs in the UK. In the 12 months to March 2017, the Punch estate reported underlying EBITDA of around GBP172 million and comprised approximately 3,200 pubs located across the UK, 96 per cent of which are held on a freehold or long leasehold basis. Punch operates its pubs predominantly under the tied leased and tenanted model, with a growing number of pubs operated under either a retail operating model or as free-of-tie commercial leases.
Punch is financed through two whole business securitisations, the Punch A Securitisation (approximately GBP770 million of gross debt secured against around 1,900 pubs) and the Punch B Securitisation (approximately GBP550 million of gross debt secured against around 1,300 pubs), as well as certain cash resources held across the Punch Group. Punch also owns approximately 50 pubs outside of the securitisations.
The Punch A Securitisation has been sold to Heineken UK in a back-to-back transaction, which is set to complete next week, for approximately GBP305 million equity value (an enterprise value of around GBP1.2 billion). Patron will own the remaining pubs as well as the Punch Holding Group. Punch will continue to operate the Punch A pubs for Heineken for six months under a transitional services agreement.  
Patron’s partner on this investment is May Capital, the London-based private equity investor and advisor with experience in the pub industry.
With a renewed level of operational and investment focus made possible by a sale of the Punch A Group to Heineken, Patron and May Capital expect to continue to pursue, and in some cases accelerate or enhance, key elements of the Punch management team's strategy, including investing in the pubs, adapting and modernising operating models such as through the roll-out of the managed operating format, and continuing to sell non-core assets.
Patron’s equity for the purchase came from its fifth fund, which closed last summer having raised EUR949 million.
Keith Breslauer, Managing Director of Patron Capital, says: "Completing this complex deal paves the way for an exciting future for Punch as a more focused business. This is a company that has undergone a number of challenges and distractions in recent years, but has a portfolio of high quality pubs with excellent future potential.
“We are experienced investors in the leisure and hospitality sector, having invested in and grown a range of businesses including Generator, the Spencer Hotel in Dublin and Jupiter Hotels. Under private ownership, with strong financial backing and our commitment to continued investment, Punch’s pubs and publicans will have our full support to deal with changing market dynamics and provide their customers with the best possible offer.” 
Duncan Garrood, Chief Executive of Punch, says: “This has been a long road and we are delighted that we are now able to move forward with clarity. I am proud of the professionalism of the Punch employees during this period of uncertainty, and remain sure of their ongoing commitment as we look to an exciting future under new ownership.”
Patron Capital and May Capital were advised by N M Rothschild & Sons Limited ("Rothschild") in relation to the acquisition and subsequent back-to-back transaction with Heineken.
The acquisition was made via Vine Acquisitions Limited, a special purpose vehicle set up by Patron Capital and May Capital.