Australian Venue Co (AVC) CEO Paul Waterson spoke with Australian Hotelier about the group’s future following the announcement that KKR had sold its majority share in the business.
Late last week it was announced that global investment firm KKR had sold its majority stake in AVC to Hong-Kong based alternative investment firm PAG. In talking to Australian Hotelier, CEO Paul Waterson elaborated on the deal, and what it means for AVC going forward.
With a number of the AVC management team on the board, Waterson said the team were always involved in the sales process and backed the move to PAG.
“We work very closely with them [KKR] when you go through a sales process and make sure that there’s strong alignment between the management team and the acquirer as well. So we get very heavy input as to who that would be,” explained Waterson.
For Waterson, he said PAG’s involvement in the Australian food industry, and an alignment in philosophy made them the ideal acquirer.
“First of all, they have very good investments in the food space in Australia in Craveable Brands which is Red Rooster, Oportos and Charcoal Charlie’s; and also Patties, so they had a really good understanding of the food space and the behaviour of the Australian consumer, and a lot of confidence in the Australian consumers resilience. So that was really important.
“Secondly, everyone that we spoke to spoke incredibly highly of them as partners in terms of being very cooperative, very focused on outcomes and a really good partner for the team. And over a course of six to eight weeks. I got to spend quite a lot of time with them and understand their philosophy around investing. And we got very excited about that. We really found the right partner for us.”
The CEO said the sale by KKR was inevitable as a private equity play, and thanked the firm or sticking with AVC throughout some challenging years.
“With private equity, they typically have a limited investment horizon of anywhere of 3-5 years. With KKR, they’ve been our majority shareholder for six years, and obviously COVID interruption for three years had an impact on that. So when you do partner with private equity, it’s inevitable, to get a return and exit at some point of the investment.
“They’ve been really terrific partners and supported us all the way through and never taken any capital out of the business. Every dollar the business has ever generated, has been reinvested into the business. But it was time for them to look at potential exits.”
While the size of AVC would normally suggest that an IPO play would be the next logical step, consumer sentiment has meant that the investor appetite hasn’t been there for a public listing.
“I think, inevitably, this business is of the size and scale that it would make a good public company one day on the ASX. But at the moment, given the uncertainty in the investor community around consumer sentiment, there’s not many IPOs actually listing,” suggested Waterson.
“At the moment, you see a real differential performance between some of those consumer businesses where some are holding up very well, and others are perhaps struggling. I think the pub sector itself is very resilient. And you’re seeing that through the results of Endeavour, and ours. But equally, you want to list a business when you’ve got the best opportunity to have a successful IPO and continue to grow. And as such, in a time of rising interest rates and uncertainty around the consumer, that’s always been tougher.”
Prior to the KKR’s sale, AVC had a clear growth strategy which include a number of acquisitions, brownfield redevelopments and greenfield builds per year. PAG have already made it clear that they will continue to back that growth strategy, with substantial investment.
“It was really important to us that we got to continue executing on the strategy that we’d outlined five years ago of acquisitions and brownfield developments, greenfields and organic growth.
“And so PAG put a really good debt facility in place to enable us to keep executing on that. So we’ve got well over $200 million of funding capacity to continue with our acquisitions, and at the same time we’re generating around $200 million of free cash flow as a business now, so it just gives you a really good bandwidth to keep going.”
The transaction between KKR and PAG is expected to close late 2023, subject to customary conditions and regulatory approvals.