Endeavour demerger puts pressure on Australian Venue Company float

A float of Australian Venue Company could hinge on Woolworths’ plans for Endeavour. Picture: Supplied

With the country’s hospitality industry only recently staging a recovery from the lockdowns caused by the pandemic, the question remains: why is Kohlberg Kravis Roberts choosing to float its Australian Venue Company business next month?

The answer could lie with the Woolworths liquor and pubs business Endeavour Drinks.

Endeavour Drinks is earmarked for a demerger in June, while KKR aims to take the Australian Venue Company to the market in May.

The thinking is that because the Woolworths pubs and liquor business is a more lucrative operation than the Australian Venue Co, KKR may have to price its business at a discount to whatever Woolworths achieves for Endeavour.

Buyout funds have held businesses for a long time, unable to sell during COVID-19, and many will take the earliest opportunity to stage an exit.

Citi and Goldman Sachs are working on the Australian Venue Co IPO.

Australian Venue Co is considered to be well run, with chief executive Paul Waterson at the helm, but the challenge is selling its earnings forecasts following a period of trading uncertainty.

It operates over 160 venues and is 80 per cent-owned by KKR, which earlier purchased Bruce Dixon’s Dixon Hospitality after initially acting as a lender, and built up the business from there.

Pubs suffered in the pandemic, as many were forced to shut during lockdowns, but they are recovering.

Citi has been working with KKR on the pubs business for some time and was mandated when KKR considered taking it to the boards last year, before the deal was shelved at the onset of the COVID-19 pandemic.

The early thinking is that KKR may seek a price that values the business at $1bn, with a raise of about 40 to 50 per cent.

While private equity groups have been circling Woolworths’ $10bn Endeavour business, most expect that the business that houses the Dan Murphy’s liquor chain will be subject to a float or a demerger.

That is thought to be the aspiration of partial shareholder Bruce Mathieson, who wants to retain his stake.

Jarden Australia, Citi and UBS are advising Woolworths.

JPMorgan is advising Mr Mathieson.

Woolworths told the market in its half-year results last month that it would “most likely” divest Endeavour through a demerger around June.

No process is under way for private equity groups to bid for Endeavour, but it is understood that informal talks are taking place, with the suitors strongly attracted to its strong cashflow.

Endeavour houses more than 537 retail liquor outlets, and a nationwide stable of 323 licensed pubs.

The liquor arm of the business posted earnings growth of 24.1 per cent and a sales uplift of 19 per cent for the first half of the 2021 financial year to $5.7bn, despite shuttered pubs and other challenges posed by the health crisis.