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Stonegate Group, proprietor of the Slug & Lettuce and Be At One chains, has initiated initial discussions with advisers regarding a divestiture of a portion of its portfolio, according to industry insiders.
This action comes as the firm faces difficulties with over £3 billion in liabilities amassed primarily due to its £3 billion acquisition of competitor Ei in 2019.
The pubs currently under evaluation — 1,034 locations internally referred to as Stonegate’s “platinum” collection — are seen as some of the organization’s most robust properties. Insiders indicated that the package might attract bids of up to £1 billion. Stonegate previously sought to divest a similar quantity of pubs in 2023, but the transaction did not advance.
Following that unsuccessful attempt, Stonegate securitized the platinum portfolio with a £638 million loan from private equity firm Apollo, separating the pubs into an independent entity, thus alleviating immediate pressure on the larger organization.
The company’s leadership is reexamining possibilities ahead of January, when a “non-call period” on the Apollo loan — which currently restricts Stonegate from selling or refinancing the pubs — will end. One possibility being contemplated is dividing the portfolio into multiple substantial chunks instead of pursuing a single buyer.
Stonegate, owned by private equity firm TDR Capital, has expanded swiftly since its establishment in 2010, when TDR purchased 333 pubs from Mitchells & Butlers. Its acquisition of Ei positioned it as the nation’s largest pub owner, surpassing Greene King, yet also burdened the company with significant debt just before the Covid pandemic compelled pubs to close for extended periods.
The financial pressure has only escalated since then. Elevated interest rates and rising operational expenses have heavily impacted the business: Stonegate’s financial burdens reached £455 million in the year ending 29 September 2024, while the group reported a £214 million loss for that period. The industry has also been affected by increased labor costs following hikes in employers’ national insurance and the minimum wage.
In August, the ratings agency Fitch downgraded Stonegate to CCC+, expressing worries about its capacity to fulfill debt repayments. The separated platinum pubs were not included in this rating.
The platinum portfolio is estimated to be generating approximately £90 million in annual EBITDA. All the pubs are freehold and distributed across England and Wales.
Private equity bidders are anticipated to exhibit considerable interest due to the scale and quality of the assets available.
In addition to efforts to stabilize its financial position, Stonegate CEO David McDowall — who transitioned from BrewDog last year — has initiated a transformation strategy aimed at restoring the company to profitability. The plan involves converting hundreds of managed pubs into tenanted or leased operations, reducing labor exposure and generating what the company claims is an average profit increase of £110,000 per pub.
TDR, Stonegate’s proprietor, is best recognized for its stake in Asda, which it acquired in a £6.8 billion deal alongside the Issa brothers in 2021. It gained majority control of the supermarket last year after purchasing Zuber Issa’s share.
Stonegate opted not to comment on the potential divestiture.
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