Scott Wright: Deal activity ramps up as hospitality owners head for the exit

However, far from being an isolated deal, the sale of the Ashton Lane venue to pub giant Greene King is one of many major sales seen in the hospitality industry already this year – and it is likely there will be a good deal more to come.

The precise reasons why Colin Clydesdale and Carol Wright sold the Ubiquitous Chip are likely to remain private, and rightly so; they are also likely to have been numerous.

For what can be said with absolute certainty is that operators are working through some of the toughest trading conditions that the hospitality industry has seen in decades. And for some owners, having steered their businesses through the depths of the pandemic, that will have been enough to convince them that now is the time to seek their exit.

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Following sharply on the heels of protracted Covid lockdowns last year, operators were then faced with an acute labour shortage, caused to a significant extent by Brexit.

That has since been followed by huge inflationary pressures on the cost front. Much of that inflation is being driven by utility costs, which have soared to a large part because of Russia’s war on Ukraine, though supply-chain difficulties that have their roots in lockdowns around the world persist. There remains upward pressure on labour costs, too, with many businesses still struggling to fill posts.

Faltering consumer confidence because of the rising cost of living, higher national insurance contributions and a return to the full rate of value-added tax can be added to this potent cocktail.

Given how precarious the trading environment has become, it is no wonder that many experienced operators have decided now is the right time to leave the industry.

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Peter Seymour, director of hotel and leisure at Graham & Sibbald, said he expects more deals to be done before this year ends, having already had a busy time at the property company in 2022. He acknowledges that current trading difficulties are prompting some operators to sell, but said there are other factors that are driving deal activity.

“Yes, some experienced operators are looking to sell but more than likely there are multiple reasons for this, not just one common theme,” Mr Seymour told The Herald.

“With over 65 deals done in the past 15 months we have seen a lot of activity, especially within the £1-3 million market. I would not call it a widespread trend but we are seeing several mature owners decide now is the time to retire.”

The hotel sector is proving to be particularly hot in terms of deal activity this year, and especially in rural areas.

While Mr Seymour said the broader market for buying and selling hospitality businesses is generally “very good at the moment”, he highlighted that demand has been especially strong for rural hotels, with several properties receiving “competing bids giving vendors a strong negotiating position”.

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This year, Mr Seymour’s firm has completed several major deals, including the sale of the long-established McMillan Hotels portfolio in Dumfries and Galloway to Bespoke Hotels. It worked on the sale of the Grant Arms Hotel in Grantown-on-Spey to an overseas buyer, and the Plockton Inn on the west coast of Scotland, which was acquired by Roddy Watt of Highland Coast Hotels.

Graham & Sibbald reported earlier this month that it has also seen record sales of island hotels in Scotland, including the Isle of Jura Hotel, Castlebay Hotel, Polochar Inn, Corrie Inn and Colonsay Hotel, among other deals.

But away from rural areas, strong interest is also being shown in city centre hotels. Last week, the Premier Inn at Glasgow’s Charing Cross was sold from a guide price of £8.5 million, with Brian Sheldon, regional director of Christie & Co, stating that the deal was a “prime example of the buoyancy across the Glasgow and wider Scottish hotel market at present, with the demand for accommodation across Scotland on the rise”.

Mr Seymour added: “We would say that rural tourist-based hotels are probably in the biggest demand. However there are also a lot of private equity-backed restaurant groups looking to expand at the moment which is interesting to see.

“Smaller deals range from couples looking for a change in lifestyle to regional pub groups looking to buy good and well-trading pubs with good barrelage. If the fundamentals of the business are good, and it is priced well, it will attract interest from a range of buyers.”

The level of deal activity now taking place is perhaps surprising, given the well-documented challenges facing the hospitality industry. But the appetite for investing does seem to indicate an underlying confidence in the long-term prospects of the hospitality industry.

A new report published by agent Christie & Co yesterday suggested that a strong return to trading in the first half of the year had driven interest from investors in pubs and restaurants.

However, the firm noted that the deals market has become polarised, highlighting demand for premium and value-end properties and fewer opportunities in the mid-market.

Christie & Co predicts more properties will become available in the second half as cost pressures and faltering consumer confidence convince operators to hoist the for-sale sign.

“During the first half of 2022 we saw the momentum that had built up throughout 2021 continue, with a number of active buyers seeking quality freehold assets from a limited pool,” said Stephen Owens, the agent’s managing director for pubs and restaurants.

“However, as we enter the second half of the year, with increasing cost headwinds and shifting consumer confidence, we predict that further assets will come to the market, which should provide those active buyers with increasing opportunities.”