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Morning Briefing for pub, restaurant and food wervice operators

Thu 28th May 2015 - Radius Equity launches £2m EIS pub scheme
Radius Equity launches £2m EIS pub scheme: Radius Equity, the specialist provider of EIS and SEIS investments, has launched a £2 million EIS compliant investment alongside the directors of a leading Northampton pub chain. The investment will be used to purchase and refurbish three pubs from the existing McManus Group through a new company to be called McManus Pub Co Limited, driving profitability through an emphasis on higher margin food and craft beer sales. Radius Equity says that with no bank debt in the funding structure, the equity investment offers strong asset backing provided by the freehold pubs. The McManus Group operates 21 pubs, primarily in Northampton and Northamptonshire, with some locations in Middlesex and Essex. The pubs range from large food led country inns, through town centre bistro establishments, to more traditional pubs focussed on televised sport and wet sales. Confidence in the sector is improving as spending on eating and drinking out in the UK is now increasing strongly again, after a post-recession fall. Spending in the sector in January this year was up 10% on January 2014. The refurbishment of each of the pubs – The Eastgate, The Frog & Fiddler, and Shipmans – will centre on improving the kitchen and food offering as part of enhancing the overall customer experience. The impact should be to boost both wet and dry sales across the estate and improve profitability. The experienced McManus teams currently in place will continue to work at the pubs with administrative and marketing functions being supplied by the McManus Group, which will enter into a management contract to manage the pubs. The CEO and Finance Director will join the Board of McManus Pub Co. This will allow McManus Pub Co to take advantage of strong pre-existing local knowledge and minimise any disruption associated with the refurbishments. Growth in the pub sector recently has been built on the growing popularity of craft beer and high-margin gastropubs. This trend has been driven by a rise in the consumption of craft beer particularly amongst younger drinkers. The completion of Northampton University’s city centre campus in 2018 should see craft beer sales in the town continue to rise. Gary Robins, Director at Radius Equity, said: “We are very pleased to be investing alongside McManus who have an excellent record of operating pubs in Northampton and have a detailed understanding of the local market. Each of these three pubs represents an excellent investment opportunity independently; investing in all three will help smooth cashflow during refurbishment and maximise returns from the project. There is strong investor appetite for pubs well positioned in their local markets as parts of the sector are starting to feel the benefits of economic recovery. Eating out is again seen by many as an affordable luxury, and growing numbers of consumers are prepared to pay premium prices in pubs which offer a good selection of real ale and craft beer.” Radius Equity will target an exit from McManus Pub Co and seek a sale of the business as soon as possible after the minimum three year EIS holding period required for investors to realise tax-free capital gains. Radius Equity is targeting a return of £1.54 for every 70p of net invested cost (i.e. after the initial 30% EIS income tax relief). This represents a multiple of 2.1 on the net cost of investment.

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