PAG considers an exit from Australian Venue Co

AVC has more than 200 venues in Australia, and industry experts believe a float makes sense, given how pub asset values are trading.

Almost a year after acquiring Kohlberg Kravis Roberts’ Australian Venue Co for about $1.4bn, PAG is believed to be already considering an exit.

DataRoom understands the Asian private equity fund is exploring an initial public offering for the company on the ASX next year.

AVC operates pubs. It has more than 200 venues in Australia, and industry experts believe a float makes sense, given how pub asset values are trading.

AVC has slot machines in some of its venues, but the gaming revenue it generates is not as high as rivals in the industry, and it makes most of its sales from food and drinks.

A listing is seen as the main exit option as private equity funds sidestep opportunities with gambling revenue after promising investors they will target ethical investments.

When PAG bought the business from KKR, the premise was that it would ramp up through acquisitions, and sources say it has been adding two or three venues a week to its portfolio.

But it has been disciplined on price and has not bought pubs that generate more than 15 per cent of revenue from gaming.

AVC also owns half of Queensland Venue Company with Coles, but the supermarket giant collects the retail liquor store revenue from the venture.

The arrangement is designed to circumvent laws in Queensland.

AVC’s landlord Hotel Property Investments has been in play, with shareholder Charter Hall Retail REIT making a takeover bid valuing the target at $755m. The offer was rejected.

It now holds 28 per cent after lifting its offer in October from $3.65 to $3.85 per share and declaring its offer best and final.

Rivals include Redcape and Endeavour, which was spun out of Woolworths and is backed by billionaire publican Bruce Mathieson.

Endeavour’s poor performance could be a challenge for AVC when it comes to a listing, because it would be used as a benchmark and its share price is currently depressed.

Pubs and operating businesses are typically sold separately, with the exception being Redcape, because in the past the real estate assets have been valued lower, with the share price gravitating towards the operating business earnings multiple.

PAG paid about 10 times earnings when it purchased AVC.

KKR in 2021 tried to list the business through Citi and Goldman Sachs, with former Mantra boss Bob East as chairman, before pulling the deal.

At the time, it was promoted as the nation’s second largest pub chain, with a focus on leasehold venues allowing it to expand in a capital-light fashion.

Once listed, the assumption was it could have debt at about 35 to 40 per cent of earnings and might try to raise about $800m.

KKR gained the business after being a lender to Bruce Dixon’s Dixon Hospitality, which it later bought and built the operation from there.

PAG also owns Oporto Chicken owner Craveable Brands and was a lender to failed regional carrier Rex. It owns The Cheesecake Shop, Patties Foods and Vesco Foods.