Private Equity: 50% of Dublin pubs’ 2020 transaction value

Six pub transactions took place in the first three months of last year realising approximately €30 million according to Morrssey's|Lisney in its Licensed Premises Property Review of 2020 & Outlook 2021 published recently.

 

Following an “active market” in 2019 which saw 16 sales realise over €57 million, many businesses remained closed for almost 10 months in 2020 with the Central Statistics Office reporting a 91% average reduction in licensed premises trading volumes nationwide.

Dublin City centre was severely impacted, with the majority of businesses ceasing trade due to the erosion of their traditional customer base.

Such city centre pubs and restaurants could perhaps survive without tourism if they’d workers coming back into city – but they don’t.

On the other hand, suburban pubs are expected to witness an uptick in spend going forward.

“Overall, the licensed trade remained resilient with many businesses adapting to the changed circumstances and implementing creative approaches to trade,” states the report adding that, “These measures in certain instances enabled operators to continue to trade, albeit at a reduced level.”

A previous Lisney’s Outlook 2021 preliminary report, published last month, found that despite the pandemic 11 Dublin pubs transacted in 2020 (six in Q1, three in Q2 and one each in Qs3 & 4)  with a further seven ‘sale agreed’ or with contracts exchanged and remaining to close at the end of December. In the event some 13 transactions were recorded equating to 1.78% of the total market with a combined capital value of €41.63 million.

 

Supply

Supply remained weak throughout Quarters 2 to 4 last year, with many vendors who’d decided to offer their premises for sale publicly finding themselves instead offering their premises for sale “quietly through a targeted process”.

And fearful that offers will be opportunistic and low, several vendors that had been considering offering their business for sale deferred their decision and are now waiting until later this year when they believe there will be more certainty. This will mean that the supply of pubs for sale will remain limited, at least in the first half of the year.

As the Morrissey’s|Lisney report put it, “In the majority of cases the initial feedback from targeted purchasers produced significant prices disparity between vendors’ and purchasers’ expectations resulting in the sale being deferred until more normalised market conditions returned”.

Seven sales concluded during the Covid period of 2020 totalling approximately €12.4 million and a further seven properties at contract stage totalled a further combined €10.75 million, some of which witnessed downwardly revised prices from those originally agreed, states the estate agent which expects the initial months of 2021 to remain relatively quiet.

However the report points out that purchasers remain active in seeking out opportunities, most of which are being explored via off-market approaches.

 

Demand

Many purchasers took the off-market approach last year with this approach accounting for some 23% of market transactions which went on to realise 49% of the total market value in 2020.

Interestingly, Private Equity purchasers accounted for some 31% of total transactions which went on to realise some 50% of 2020’s total market value.

This was followed by ‘developers and acquisitions for alternative use’ which  accounted for 31% of the transactions and 33% of the total market value. Publicans themselves accounted for 23% of the transactions which realised 13% of the total value while investor acquisitions accounted for 15% of the transactions, 5% of the value.

According to Morrissey’s|Lisney, who sold nearly 40% of all pubs on the market in Dublin last year, given the right opportunity, well-resourced established operators are still keen to engage.

“In addition to traditional demand, recently there has been an emergence of new demand through Private Equity,” noted the auctioneer, “These purchasers are targeting the upper tier of the Dublin City market with a preference to acquire scale through the purchase of established pub groups, or alternatively acquiring a number of high-value premises at the same time.”

 

Activity

Some 13 transactions were recorded in 2020 equating to 1.78% of the total market with a combined capital value of €41.53 million, reports Morrissey’s|Lisney who points out, “We believe 2020 was on-track for an increase in activity bearing in mind the strong early activity witnessed in Q1”.

The pre-Covid market opened strongly with eight Dublin pub sales contracted. However only six of these sales had completed by the year’s end.

“The seven sales concluded during the Covid period were across varying asset classes and value ranges and included The Black Forge in Drimnagh, Ruin Bar on Townsend Street, The Dark Horse in Blackrock, The Queen’s in Dalkey, JK Stoutman’s on James Street, Hyne’s on Prussia Street & Grainger’s in Clontarf.”

The report continues, “While the level of activity is positive in the current climate, the Covid pandemic has had a significant impact with some sales becoming protracted with closing dates delayed such as The Eagle House in Dundrum and The Old Punch Bowl, Booterstown, whilst other sales have fallen through completely such as The Concorde in Edenmore, Becky Morgan’s on Grand Canal Street and The Bowery in Rathmines”.

Scruffy Murphy’s (in Powerscourt Townhouse Centre) did sell via Timmy O’Connor (Oil Can Harry’s) for redevelopment but the sale did not include the licence.

Also, Ruin Bar and adjacent properties including three floors of apartments above the bar were reportedly sold for €8 million.

The auctioneer points out that, “A large volume of vendors that had been considering offering their businesses for sale have deferred their decisions to go to market until Q1 or early to mid-Q2 2021 when they feel there will be more certainty in the anticipation of the market stabilising off the back of the roll-out of international vaccines”.

 

Sources of demand & the emergence of Private Equity

Morrissey’s|Lisneys found 2020 an interesting year in relation to market demand which witnessed the emergence of Private Equity as a key player in terms of the volume of the market acquired.

“Over the past 24 months we have seen Private Equity take a considered interest in the Dublin licensed premises property market. This is due in part to the recovery of the sector throughout 2018 & 2019 and indeed early 2020 witnessing an uplift in both trading and underlying property values.

“With the emergence of Private Equity and foreign funds considering the Dublin Licensed Premises market for investment, the purchasing of high-value pub groups could become a new phenomenon in the Irish market and should any of these funds be successful, it’s conceivable that the value of the 2021 market could exceed all previous years,” believes the auctioneer.

 

7-Day Licence values

Licence values remained relatively consistent prior to the Covid period realising approximately €50,000 to €52,500 in the vast majority of cases between January 2018 and Q1 2021.

But the impact of Covid on the Licence market for extinguishment & transfer purposes was a reduction of value of the order of 20% to 25% with prices now somewhat stabilised at €40,000, notes the report.

And licence demand throughout 2020 continued to be driven by the off-licence channel.

“Licensing requirements were predominantly for the creation of new retailing concerns such as supermarkets, convenience retail outlets and more recently, petrol forecourt retailing,” states Morrissey’s|Lisney who also warns that current value could possibly reduce further should a large volume of licences be brought to the market.

 

The Provincial market in 2020

2020 was a quiet year in terms of activity within the provincial market, according to the report which states, “The characteristics of the trading environment in Dublin were echoed regionally with licensed premises that enjoy a local residential customer base coupled with a strong food offering faring significantly better than premises that are city/town centre-located, beverage-only, tourist-driven or predominantly late night focused”.

 

Outlook 2021

With the vaccine likely to be rolled-out in the coming months workers can start returning to offices (albeit likely on a more agile basis) and Social Distancing precautions are likely to become less stringent over time, allowing for greater levels of trade.

Morrissey’s|Lisney believes that the outlook for future activity is positive.

“Sentiment within the market remains positive with most operators viewing the current crisis as a short-term issue and remaining confident, in most cases, that previous trading levels will return,” it reports.

But until this trade stabilises and the risk of future closure periods dissipates, we’re unlikely to see significant levels of lending from pillar banks. The hope is that the economy – and with it most licensed premises – will reopen in the second half of the year, however trading levels are likely to be impacted as long as Social Distancing remains in place states the report.

“The hope is that onwards into 2022 after an unprecedented period for the licensed industry and hospitality sector it may be in line for a ‘honeymoon period’ due to significant pent-up demand from people realising over multiple Lockdowns the value of social interaction, meeting up with family and friends and appreciating the unique atmosphere offered in an Irish pub.”

Let’s hope so.

 

 

 

 

 

 

 

 

 

For more information contact Tony Morrissey on tmorrissey@lisney.com, Rory Browne on rbrowne@lisney.com or Shane Markey on smarkey@lisney.com.