Enterprise Inns plc
Enterprise Inns plc
Sales: £368.9 million ($575.9 million) (2002)
Stock Exchanges: London
Ticker Symbol: ETI
NAIC: 722410 Drinking Places (Alcoholic Beverages); 424820 Wine and Distilled Alcoholic Beverage Merchant Wholesalers; 531190 Lessors of Other Real Estate Property
Enterprise Inns plc is the United Kingdom's largest pub company, boasting a portfolio of more than 5,300 pubs across Great Britain. Unlike most of its competitors, Enterprise has long eschewed the managed pubs market and instead focuses on building up its estate of leased and tenanted pubs. Enterprise owns the properties and leases them to tenant-operators under a franchise-like arrangement in which Enterprise provides support services. In return, pub operators are required to purchase all of their beer and most of their other beverage needs from Enterprise. Some 75 percent of Enterprise's revenues, which neared £370 million ($576 million) in 2002, come from beverage sales; the remainder is generated by rents on its properties. This structure allows the company to maintain a relatively lean management organization; much of the company's management decisions are carried out through a team of district managers, each of whom oversees a group of 50 pubs in their region. As such, CEO Ted Tuppen, who formed the company in 1991, provides little day-to-day direction and instead concentrates on building the company's portfolio through an ambitious acquisition strategy—by early 2004, the company expects its portfolio to soar past 9,000 pubs, giving the company control of some 15 percent of the total U.K. market.
Opportunistic Origins in the 1980s
Pubs in the United Kingdom had traditionally been controlled by the country's giant brewing groups. Yet in the late 1980s, the Tory government demanded limits placed on the brewing group's pub estates. As a result of the Beer Orders of 1989, which required that the brewers divest their excess properties before the end of 1992, some 11,000 pubs—of a total of more than 60,000—suddenly came onto the open market.
A number of entrepreneurs recognized the opportunity in building a new breed of pub-based businesses. One of these entrepreneurs was Ted Tuppen, then 38 years old. Tuppen had no prior experience in the pub or beverage industry, having initially worked as an accountant for KPMG in the 1970s, before going on to run an engineering company through most of the 1980s. Yet, as Tuppen told Venture Magazine: "Pubs which had previously not been available to outsiders suddenly became available in large quantities. It was a completely false market created by government interference, and it gave me the opportunity to start a new business—one in which I had no experience at all."
Yet Tuppen had begun building an experienced management team, including drinks industry veteran Michael Cottrell, who was named chairman of the company, and set about raising financing from venture capitalists. "It was opportunistic and it was easy to understand," Tuppen told Venture. "We were buying pubs that had been in the same format for 100 years; it wasn't introducing a new concept. We could predict trading patterns with a high degree of confidence."
In addition, under the previous "tied" owner-tenant relationship, breweries had no incentive to optimize a location's potential, where pubs served only a limited range of products produced by their owner-brewers. Under the Enterprise Inns business model, Tuppen promised to maximize the potential of its proposed assets, providing strong support services, including training programs, as well as expanded product lines. By the end of 1989, Tuppen had succeeded in raising £50 million.
Enterprise Inns then began negotiating its first purchase, a process that resulted in the acquisition of 368 Midlands region-based pubs from the Bass brewery group (which later became Six Continents). The company then began negotiating whole-saling agreements with the country's major brewers, and by the middle of the decade had given its pub operators access to more than 30 brewers and some 90 percent of the United Kingdom's leading beer brands. Enterprise also worked toward improving its properties as well.
"We set about improving the fabric of our pubs: this is very subjective," Tuppen explained to Venture. "It meant whatever was appropriate to that particular area. We have no desire to come up with a formulaic approach. We have improved the quality of our licensees through training and we have improved the quality of products offered." In this respect, Enterprise swam against the tide, as the U.K. pubs industry turned to a managed pub model, in which pubs—generally grouped into themed chains—were directly owned and managed by the pub company.
Nonetheless, Enterprise stuck to its tenanted concept and by 1994 the company was ready to begin its first expansion effort, the purchase of a package of 75 pubs from Allied Lyons, predecessor to Allied Domecq. That purchase was followed in early 1995 by the acquisition of 45 pubs from Whitbread.
In order to fuel further expansion, however, Enterprise had to look beyond its venture capital base. In November 1995, the company listed on the London Stock Exchange. The company's first purchase following the public offering was a modest one, adding ten properties from Greenalls.
Opportunity knocked again at the beginning of 1996, when Belgian brewing giant Interbrew decided to sell off its U.K. pub estate, John Labatt Retail. Enterprise stepped in, paying £61.5 million to acquire the 413-pub portfolio. The purchase placed the company on the pub map, enabling it to break out of its Midlands-region focus with a strong range of properties in the Southeast and London markets.
Building a "Perfect" Pub Giant for the New Century
That deal proved to be a turning point for the company, as it began to command new respect in the pub industry. As Tuppen said, "We doubled our size and moved from being regional to national. It substantially changed the profile of our business. We began to develop our reputation as effective managers of a large pub estate and as canny acquirers." Enterprise also had begun to gain recognition for its commitment to a tenanted estate, particularly for its smaller properties where weekly revenues generated were not enough to justify the expense of direct management.
Tuppen began scouting for the next prospect, and in April 1997 announced that it had reached an agreement to acquire Discovery Inns for the bargain price of £46 million. Formed from a spinoff of a number of former Whitbread-held pubs, the acquisition boosted Enterprise's portfolio by an additional 277 pubs located in Wales, the West Midlands, and the West Country. It also enabled Enterprise to renegotiate its supply contract with Whitbread, expanding its line of beers.
Enterprise turned to Whitbread directly in September 1997, paying £11 million for 94 pubs. The company also acquired eight more pubs that month from Southeast-based Pubmaster, paying less than £2 million. Yet Enterprise had already begun preparing a new large-scale deal, which culminated in February 1998 with the £48 million purchase of brewery and pubs group Gibbs Mew. Founded a century earlier, Gibbs Mew added 310 pubs to Enterprise's portfolio, which now climbed past 1,500 pubs. Enterprise then sold off Gibbs Mew's brewery and wholesale businesses, as well as a number of its underperforming pubs, raising some £20 million against its purchase price.
Setting itself a new goal of reaching 2,500 pubs by the end of the decade, Enterprise found its next acquisition target in October 1998, paying £37 million to acquire the 276-strong tenanted pub estate of Mayfair Taverns. The company then turned predator the following year, launching a hostile takeover of rival Century Inns in March 1999. That acquisition, at a cost of £78 million, added more than 500 new pubs to the company's estate. Soon after, Enterprise returned to Bass, paying £69 million—plus 20 managed pubs acquired from Century—in exchange for 217 tenanted pubs.
By the end of 1999, Enterprise had nearly succeeded in meeting its initial goal, with more than 2,400 pubs in its portfolio. The company nonetheless showed no signs of slowing down, announcing that its existing management structure was large enough to handle more than 3,000 pubs—and that it was willing to expand its estate to as many as 6,000 pubs.
The company slowed the pace of purchases through much of 2000, focusing instead on pruning its portfolio, selling off poor performers while spending some £50 million adding a number of individual properties. Nonetheless, the company made one major deal that year, paying Whitbread £110 million for 183 houses located primarily in Yorkshire and Lancashire. The company then generated some £50 million through the sale of 35 managed pubs acquired in that purchase.
Whitbread provided Enterprise with its next major acquisition the following year, when Enterprise agreed to pay £262.5 million to Morgan Grenfell—the Deutsche Bank arm that had taken over Whitbread's 3,000-strong pub portfolio—for a package of 439 managed pubs. These were then converted to the company's preferred tenanted pub format.
Meanwhile, Enterprise had partnered with Noble House Leisure, a themed bar and restaurant specialist, to take over 650 pubs from Scottish & Newcastle. Enterprise's share of that purchase added 432 houses to its portfolio, at a cost of £260 million. By the end of 2001, Enterprise had boosted its estate past 3,500 pubs.
The Company continues to invest substantial capital, alongside our licensees, to further enhance the estate quality.
Yet Tuppen's biggest deals were yet to come. In March 2002, Enterprise announced that it had formed a consortium, called the Unique Pub Company, to purchase the 4,000-strong pub estate from Japan's Nomura for more than £2 billion. Enterprise's part in the consortium, which included as partners Cinven and Legal & General Ventures, stood at a little less than 17 percent; yet under the agreement Enterprise reserved the option to acquire the remaining 83 percent in 2004.
In the meantime, Enterprise immediately returned to the acquisition trail in April 2002, paying Morgan Grenfell £875 million to take over another 1,860 former Whitbread pub properties, which had been reformed a year earlier as Laurel Pub Holdings. That purchase propelled Enterprise into the leadership position among U.K. pub operators, boosting its portfolio to more than 5,000 pubs. At the same time, the company had nearly quadrupled its revenues in just four years, with sales at nearly £370 million in 2002.
With debt levels soaring to £1.6 million—more than its asset value—Enterprise cooled its acquisition drive in 2003, if only to prepare for its pending acquisition of the 4,000-strong Unique Pub group. As Tuppen explained to the Birmingham Post: "I'm going to have the whole issue of merging over 4,000 pubs with my existing 5,000 plus. To start getting a bit macho about it by snapping up everything that moves seems a bit silly."
In the meantime, industry developments appeared to be proving Tuppen right in his commitment to tenanted estates. With rising wages and other costs, and tightening government regulations, the managed pub concept had come under heavy pressure at the turn of the century. Enterprise, however, remained relatively protected from these issues. Indeed, as Tuppen boasted, "Enterprise is almost the perfect business, there is not a lot missing but I wouldn't be as pompous to say it was the perfect business. Over the next five years we are going to develop it into a top class estate. It's the perfect business concept but we don't do it all properly yet. We still have things to learn and get right."
- Ted Tuppen forms management team to found Enterprise Inns in order to acquire tenanted pubs.
- Enterprise buys 368 pubs from Bass.
- Enterprise buys 75 pubs from Allied Lyons.
- The company acquires 45 pubs from Whitbread; a public listing is made on the London stock exchange.
- The company acquires the 413-pub John Labatt portfolio from Interbrew.
- The company acquires Discovery Inns and buys 94 pubs from Whitbread.
- The company acquires Gibbs Mews, adding 310 pubs, and Mayfair Taverns, with 276 pubs.
- Century Inns undergoes a hostile takeover.
- The company acquires 183 pubs from Whitbread.
- The company acquires 439 pubs from Deutsche Bank's Morgan Grenfell and 430 pubs from Scottish & Newcastle.
- The company joins a consortium to acquire the 4,000-pub Unique Pub Company from Nomura; 1,869 pubs are acquired from Morgan Grenfell.
- Preparations begin to acquire full control of Unique Pub in 2004.
Enterprise Pubs Two Ltd.; Enterprise Pubs Four Ltd.; Enterprise Pubs Seven Ltd.; The Unique Pub Company (16.8%); Warwickshire Hotels Ltd. (50%).
Compass Group PLC; Whitbread PLC; Compass Roadside Ltd.; Punch Retail Ltd.; J D Wetherspoon PLC; Wolverhampton and Dudley Breweries PLC; Greene King PLC; Luminar PLC; Ascot PLC; SFI Group PLC.
Blackwell, David, "Acquisitions Drive Growth at Enterprise," Financial Times, November 24, 1999, p. 30.
Cole, Cheryl, "In a Changing World, This Enterprise Is Predictable," Birmingham Post, April 8, 2003, p. 23.
Cox, Stephen, "The Man Behind the Man Behind the Bar," Observer, May 3, 1998, p. B2.
Jones, Adam, "Enterprise Trying to Avoid Share Issue in £608m Deal," Financial Times, September 17, 2003, p. 27.
Reece, Damien, "Suppin' with Tuppen," Daily Telegraph, March 24, 2002.
Winn, Sheri, "The Spirit of Enterprise," Venture Magazine, June 2000.
—M. L. Cohen