Exclusive – Oakman Group appoints advisors as it gears up to consider options: Oakman Group, the award-winning pub-restaurant operator, has appointed advisors as it gears up to consider options available to facilitate a liquidity event for shareholders next year, Propel has learned. The Peter Borg-Neal-led business is understood to be working with leading sector advisory firm Sapient Corporate Finance on its options, which could include the sale of the whole business or some kind of capital-raise. The 42-strong group, which Borg-Neal founded in 2007, is currently backed by a number of high-net-worth individuals, and has previously used the EIS route to fund its expansion. Earlier this week, the business reported it had seen its most profitable quarter since December 2021. Borg-Neal said group sales for the financial year to June 2023 were 8% ahead of the prior year at just under £70m. In addition, like-for-like sales for the core Oakman Inns business were up 4.1%. However, consistent with the wider sector, Oakman’s profits for the year were impacted by inflation with site Ebitda down from £12.0m to £9.8m. Borg-Neal said the business had taken action to reduce costs including enhancing pricing policies, delivering cost reductions, refocusing training, improving employee engagement and optimising labour scheduling. The aim is to increase site Ebitda in the current year by £2.5m and reduce central overhead costs by £1.3m. Borg-Neal said: “The first quarter of FY2023-24 was the most profitable quarter since December 2021. Furthermore, we are already tracking 10% ahead of the prior year for Christmas bookings. We have also consolidated our corporate structure, which had become unnecessarily complicated since its inception more than 16 years ago and this has reduced administration and management overheads.” To assist with the development of these new sites and refinance £5m of third-party debt, Borg-Neal announced the launch of a new £10m loan note secured against the company’s substantial property portfolio. The company said it has already discussed this approach with key investors in Oakman, and strong progress has been made in relation to raising approximately £5.5m, which exceeds the threshold required to repay the bank. Oakman features in the Propel Turnover & Profits Blue Book, the latest edition of which was sent to Premium subscribers yesterday (Friday, 10 November). Its turnover of £70m is the 114th highest in the database. The Blue Book ranks companies by turnover, profit and profit conversion, listing directors’ earnings for the past five years. Companies can now have an unlimited number of people receive access to Propel Premium for a year for £995 plus VAT – whether they are an operator or a supplier. The single subscription rate is £495 plus VAT for operators and £595 plus VAT for suppliers. Email kai.kirkman@propelinfo.com to upgrade your subscription.

Cheekpieces are strips of sheepskin that are attached to the side of a horse’s bridle. They partially obscure a horse’s rear vision, with the aim of getting the horse to concentrate on racing. Earlier this year, the board of Oakman Group decided they needed their own cheekpieces to get the business back to doing what it did best. They didn’t have to look far around their own stable. In March this year, Oakman founder and horserace owner Peter Borg-Neal again took up the reins at the business he founded in 2007, at a time when arguably it needed greater clarity and focus on what was in front of it.

That Oakman is fundamentally a very good business with a very good collection of assets has never been in question. The question is whether it was in danger of letting that slip. People have always been at the core of its success. Indeed, the business has become a fixture of the Best Companies to Work For List, and had consistently been given three stars. Last year it went down to two stars, which is still a good score but only would have highlighted that perhaps standards had begun to slip slightly. The innovative and numerous ways it has looked to finance its expansion and capex have come to a head, alongside a long-held desire from its long-term shareholders for an exit of some sort. At the same time, it has also had to face the same challenges as the rest of the sector, with the significant cost base and labour issues a premium, food-led proposition comes with. Changes at the top of the group, including a change at chief executive and finance director, has also given the impression of a business in a state of flux. While sales continued to be strong, like many across the sector it has struggled to convert that to the bottom line.

With Borg-Neal back in the business, stability has been restored and action has been taken to reduce costs including enhancing pricing policies, delivering cost reductions, refocusing training, improving employee engagement and optimising labour scheduling. The aim is to increase site Ebitda in the current year by £2.5m and reduce central overhead costs by £1.3m. Sales for the financial year to June 2023 were 8% ahead of the prior year at just under £70m. In addition, like-for-like sales for the core Oakman Inns business were up 4.1%. However, consistent with the wider sector, Oakman’s profits for the year were impacted by inflation with site Ebitda down from £12.0m to £9.8m. It has also consolidated its corporate structure, which even the business has admitted had become “unnecessarily complicated” since its inception more than 16 years ago and this has reduced administration and management overheads. The corporate structure of the business has caused issues for a while. Through a number of fundraising rounds, with the likes of Downing, the company had become a somewhat complicated structure, which has caused admin issues. Consolidating it and cleaning this up had become a lengthy and difficult process. However, finalising that process will make a significant difference to its cost base.

An outright sale of the business is a strong possibility, or some other capital raise or partial liquidity event for some shareholders again. The fact that the business is going through a fundraising right now will show that there is some conviction around a liquidity event. At the same time, in terms of the Santander refinancing, which should happen next March/April, by appointing Sapient, it also points out to the bank that the business is also going to be looking at a broader solution. It will also allow the company to get back to developing its land-banked sites. It still has a good pipeline in place, and I expect frustration has grown that it has not been able to press on with plugging into it. This will surely be one of the main attractions for any investor. The success of the group’s most recent two openings – The Journeyman in Gerrards Cross and The George in Ludlow are trading ahead of expectations with weekly sales (net of VAT) in excess of £60,000 and £40,000 respectively – show the business hasn’t forgotten how to pick, invest in and operate good sites. There will be a question of whether it will need to further rationalise its estate before any process begins. The company will be very conscious of the fact that the Oakman concept, which is based on freshly prepared food, skilled chefs etc, used to work in a site that would take £25,000 but now that has to be close to £30,000 to make sense. It is thought the company’s average weekly sales per site is more than £40,000, with its larger sites still doing “big numbers” despite the cost increases. 

Of course, the M&A market remains subdued, and will continue to be so with the current level of interest rates and lack of a traditional debt market. But with Oakman you get the sense this is a classic example of when there are more challenging markets, great businesses and assets that ordinarily don't come available, sometimes do. In a more benign market, it would have continued to do what it has always done – it would be trading well, taking on new sites and finding a way to fund them. But when the market becomes more challenging, pressures are greater and then suddenly these types of businesses become available. In doing so, it will be, and probably already is, on the radar for the likes of Mitchells & Butlers and Greene King, both looking for businesses that can add sales impetus, expertise and new concepts that can plug into their existing estates. Oakman has proven that given the right sites it can take a lot of money, because of the attractiveness of its offer. If it was being really ambitious, then surely it would also be attractive to Liberation Group, and RedCat Pub Company. There is also the possibility that it could prove an attractive addition to the Brunning & Price business, whether that is, by the middle of next year, still owned by The Restaurant Group or not. As seen with the Heartwood Collection, investment firms, in that case Alchemy Partners, remain interested in the sector, and in the right assets. 

Businesses like Oakman – with average sales in excess of £40,000 net and average Ebitda per site of more than £350,000 – don’t come up often, even more so when you consider the locations of the pubs in the south of England. The question will be whether investors/trade buyers can afford not to move for it. There is bound to be plenty of jockeying for position between now and then.