Pubs float in the beer pipelines as Australian Venue Co heads to boards

Paul Waterson, CEO of Australian Venue Co. Picture: David Caird

The float pipeline is piling up with bullish market conditions tempting private equity owners to head to the listed market, with Australian Venue Co being promoted as a consolidator in the pub market by majority owner KKR as it heads for the bourse.

AVC has Goldman Sachs and Citi advising on a float that would position the Bob East-chaired company as a growth play not unlike the Mantra Group he led before it sold to Accor.

AVC is already the nation’s second largest pub chain with 175 venues across Australasia and its focus on leasehold venues allows it to expand in a capital light fashion as it benefits from the reopening trade in the pub sector.

The company rocketed along before the coronavirus crisis struck, picking up about 15 venues annually, before bulking up with the purchase of 86 venues from Coles in 2019, putting it behind only the Woolworths Hotels operation.

AVC is forecasting earnings before interest, taxes, depreciation and amortisation of $207m in fiscal 2022, a bounce back from the $127.5m it earned last financial year as the pandemic struck.

 

Research from Goldman Sachs estimates that AVC could have a forward enterprise value of $975m to $1.315bn, allowing for a substantive sell down by KKR.

AVC is more exposed to food and beverage operations than its main rivals, which could ultimately face a regulatory hit. Woolworth-backed ALH Group and listed owner-operator Redcape have a stronger gaming focus.

AVC‘s big opportunity is capitalising on the low market concentration in pubs with consultant L.E.K. estimating that just 11 per cent of the country’s 9500 venues are in corporate hands and 13 big companies representing the vast majority of this segment.

Rival ALH owns 338 venues or 3.6 per cent of the country’s venues and AVC has 165 venues in Australia and ten in NZ, putting its share at 1.7 per cent

Investors have been told the potential to consolidate in lease pubs is significant and AVC estimates that about 2000 venues meet its criteria.

The float is partly a play on a full reopening of dining as the rollout of vaccines is sped up and partly hinges on the company wringing more out of its empire of 3242 poker machines.

But much growth will depend on the company’s ability to buy more pubs against stiff competition from deep pocketed pub families including the Laundys, Merivale and Iris Capital.

KKR’s move to float AVC may spur some of these large private players to assess their own operations for a run at the ASX.