Introduction

Punch Taverns plc announces it has acquired the entire ordinary issued share capital of InnSpired Group Limited.

The acquisition values InnSpired at approximately £335 million including the assumption of £258 million of external debt. The cash consideration for the acquisition will be funded through a combination of cash and debt from the Group’s existing resources.

Information on InnSpired

InnSpired, a private company, operates a leased and tenanted pub estate of 1,064 pubs located throughout England and Wales. Punch will benefit in particular from InnSpired’s strong presence in Southern England, with over 50% of the estate in this geography. Over 98% of the estate is freehold/long leasehold and it primarily consists of ‘community’ locals.

InnSpired was originally formed from the merger of two pub estates, Ushers of Trowbridge in the west country and Alehouse Limited. In addition, InnSpired has made more recent acquisitions, notably a sizeable portfolio from Scottish and Newcastle plc. The estate comprises stable, cash-generative pubs with significant potential for investment.

As at 31 October 2003, the latest audited accounts, InnSpired’s net assets were £34.4 million. In the year ended 31 October 2003, InnSpired generated earnings before interest, tax and depreciation (“EBITDA”) of £32.4 million. Acquisitions, improvement in the terms of drinks supply contracts and strong operational performance contributed to May 2004 moving annual total (“MAT”) EBITDA increasing to £35.2 million.

Effect and benefits of the acquisition

As at 21 August 2004, the Punch estate comprised 7,334 pubs located nationwide and the Group has a clear strategy of expansion through a combination of organic growth and targeted acquisitions. The acquisition represents an attractive opportunity for the Group as the InnSpired estate contains a good proportion of high quality outlets which will complement Punch’s existing estate and provide significant development opportunities. The acquisition is expected to be both earnings enhancing and to deliver a return on investment in excess of the Group's weighted average cost of capital in the first full year of acquisition.

InnSpired is an excellent fit with Punch, providing improved geographic spread and diversity. Following integration, synergies are expected to be in excess of £3 million per annum, generated from purchasing benefits and other cost savings.

Consideration and financial effect

A wholly owned subsidiary of Punch, Punch Taverns (ITB) Limited, is acquiring InnSpired. The acquisition value of approximately £335 million includes the assumption of £239 million of securitised bonds and £19 million additional external debt. In addition, Punch will pay £18 million for cash balances, net of working capital liabilities.

The cash consideration for the acquisition of approximately £95 million is being satisfied by a combination of existing cash resources and a revolving facility with the Royal Bank of Scotland (“RBS”). The revolving facility with RBS was originally put in place to finance the acquisition of Pubmaster in December 2003 and was fully repaid early in 2004. For the purpose of the InnSpired acquisition the facility has been increased to £80 million.

On-sale transaction

In order to address specific areas of local concentration, Punch Taverns (PGE) Limited, a wholly owned subsidiary of Punch, has agreed to sell 88 pubs to Admiral Taverns Limited for a total cash consideration of £22.6 million. Completion of this sale is expected shortly. Of the 88 pubs being sold, 51 are from the InnSpired estate and 37 are from the existing Punch estate.

The on-sale outlets generated May 2004 MAT EBITDA (before central overheads) of approximately £2.3 million. The disposal proceeds will be used to reduce net debt.

Giles Thorley, Chief Executive of Punch Taverns plc, commented:

“The acquisition of InnSpired once again demonstrates Punch’s ability to secure attractive pub assets at realistic prices. This estate further enhances the Group’s geographic coverage and strengthens its presence in the South and South West in particular. The significant investment opportunity it offers will deliver good returns from the outset and attractive growth potential for the future.”

Ends