Management of a branded group of bars, restaurants and pubs
Background
This group of c 50 high volume sites comprised late night bars, restaurants and a small number of large community pubs, with a wide geographic spread across the UK. The sites were owned by a former AIM listed group. It had withdrawn from the stock market and had been the subject of a proposed sale to a third party. This sale had fallen through because the price could not be agreed. The group went into administration once it was apparent that the sale could not be completed.
The initial brief to LS was that the Administration of the group would be short term and more in the nature of a “pre pack”. A management buy- out was imminent. Two key directors were to remain in the business as they would be part of the new management team. Five sites were closed immediately and LS were to have a strong site presence and maintain a “light touch”.
LS had not been involved in the pre–Administration review undertaken by a leading city firm of accountants. However, it was felt that LS would add value to the process until the new MBO was up and running. LS had very little time to prepare and put a high level of resources in place to run the head office operations and provide a credible presence at site level.
Phase One:
The initial days of the Administration were very challenging with LS needing to liaise with both the London and Manchester offices of the Joint Administrators. Significant efforts were required to ensure that the business, the Joint Administrators and suppliers maintained the necessary focus to preserve customer confidence. All other sites remained open and LS became the premises license holders. It became apparent in the first month that the management buy -out was not going to succeed and so the Joint Administrators and lending banks had to find another strategy.
Phase Two:
A second option of creating a “special purpose vehicle” (SPV) with a specific management team was considered and this nearly came to fruition towards the end of the second month. For the banks, the attraction of an SPV with an experienced management team was that they could trade the assets until the market picked up and preserve asset values.
During the next two months of Administration, LS continued to support the Joint Administrators and undertook considerable field work; monitoring performance, checking that appropriate controls were in place and addressing staffing and regulatory issues. This presence became increasingly important as many of the sites, particularly the late night bars continued to perform below budget but, importantly, in line with market trends in that business.
Whilst the SPV model was retained in principle, the banks decided that they needed a stronger management group to run the business than they had first contemplated and approached a well-known chain to see if a management contract could be agreed. Further time and cost were incurred whilst this process took place. To offset the impact of the length of time in administration, LS introduced a management incentive programme to drive performance at site level. This proved to be very successful and was extended across the group.
Phase Three:
After just over 4 months, a new investment structure was finally agreed and completed.
The new operators took over the sites at a difficult time- just before Christmas, with LS spearheading the handover process. The new owners had decided not to accept four sites, which therefore had to be closed by LS.
