Companies: REG   

With the £26m purchase of the Old Orleans chain of Louisiana-themed bar-restaurants, Bob Ivell, chief executive of branded bar operator Regent Inns, has finally completed a deal after almost two years of trying.

The acquisition of the 31-strong chain from Punch Taverns on a cash- and debt-free basis is to be funded by an increase in Regent's bank debt facility to £116m. Until now, Ivell has been thwarted in all his endeavours to affix a third pillar to the fully-listed counter's underperforming operations. Its existing estate consists of the chains of Jongleurs comedy clubs and Aussie-themed Walkabout bars, which, a July update revealed, saw a like-for-like sales decline of 0.4% in the year.

The Old Orleans business made sales of £35.3m in the year to August 2005 and EBITDA of £5.3m. Independent broker Charles Stanley suspects Regent ‘has identified scope for central cost savings with a view to improving margins at the newly acquired sites’ as Orleans managed margins of just 13.1% in the six months to Feb 2006, compared to Regent’s group margin of 20.5% in the period. The chain should also benefit from becoming a core business, rather than on the periphery of Punch’s 2,000-strong estate.

‘We have previous experience of successfully managing the 'Old Orleans' outlets,’ says Ivell, ‘and are confident that we can enhance the operational performance through carefully targeted capital investment, improved food and entertainment offerings and marketing.’

Since private equity group Alchemy Partners walked away empty handed from discussions in June, Regent shares have fallen to a year's low. Consensus forecasts prior to the acquisition of 6.21 for this year position the shares on a prospective p/e ratio of 12.4, but Ivell expects the acquisition will slightly dilute earnings in 2007. This is an extremely tough market and best avoided for now.