BEST ACQUISITION FINANCING: Grovebase wins the chase
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BANKING

BEST ACQUISITION FINANCING: Grovebase wins the chase

Issuer: Grovebase Properties
Targets: Wellington Group, Punch Taverns
Amounts: £231 million ($395 million), £535 million ($915 million)
Dates: February 1998, March 1998
Lead managers: Morgan Stanley Dean Witter, BT Alex Brown



Although leveraged acquisitions are by no means unheard of, they are still a very small asset class. Regulatory and legal restrictions, especially in continental Europe, have limited the development of this type of acquisition.

Which makes two deals within three weeks as part of one company’s acquisition strategy all the more noteworthy. Grovebase chiefs Hugh Osmond and Roger Myers have a successful track record running restaurant chains, and were keen to expand into pubs—an industry undergoing rapid consolidation in the UK. Morgan Stanley’s deal came first, securitizing rent revenues from 845 Wellington pubs, which Grovebase was buying from Phoenix Inns. Then came the larger deal for the 1,428-pub estate of Punch Taverns, bought from UK brewer, Bass. This time, though, the majority of the secured cashflow was based on beer sales to the pub landlords (60% of the total) with the shortfall coming from rent revenues.

With the Wellington deal having more secure cashflows, Morgan Stanley’s team was able to gain a triple-A rating for the largest of the tranches, which totalled £160 million ($273 million).

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