Global investment giant KKR has formalised an agreement with alternative investment firm PAG for purchase of its controlling share in Australian Venue Co (AVC) in a billion-dollar-plus deal.
Today’s announcement finalises a process that began nearly a year ago with a strategic review of the group’s market value. Although terms of the transaction were not disclosed, it is understood PAG Asia Capital has acquired AVC for around $1.4 billion.
AVC has rapidly established itself as the second-largest and arguably one of the most progressive operators across Australia and New Zealand, with a portfolio of more than 210 venues in metro, suburban and regional locations including institutions such as St Kilda’s The Esplanade and Bungalow8 in Darling Harbour.
Led by CEO Paul Waterson, AVC has differentiated itself from corporate practise by tailoring every venue to its local community.
KKR acquired an 80 per cent stake of what was then Dixon Group in 2017 for about $190 million, comprising a portfolio of 50 leaseholds. Touting an objective to partner and support its growth ambitions, KKR has funded many further acquisitions, including entire portfolios as with Sand Hill Road’s awarded collection last year, seeing venue growth of more than 300 per cent.
While the private equity behemoth has attempted twice to float the collection, looking at market capitalisation on AVC of $900 million in 2021, both run-ups were abandoned as market dynamics not limited to COVID hampered conditions for a successful exit.
Throughout this time the capex has continued, AVC disclosing it has spent in the region of $124 million at 40 of its venues, largely in Queensland, in the past few years.
The spend has reportedly brought dividends in spades, coming largely after careful analysis of specific regional demographics and potential through gaps in the market. Most of its pubs in Queensland are vestiges of the Coles’ Spirit Hotels portfolio, acquired in 2019.
An increasingly sophisticated market and destination for tree- and sea-changers, AVC has capitalised on the history lack of capital put into Queensland pubs, and the typically land-rich opportunities of many of them.
Furthermore, beyond what has already been done the group says it identifies another 40 to 60 of its venues worthy of investment.
“We are excited to have worked alongside Paul and AVC’s dedicated team to invest in the company’s expansion and believe that AVC is well positioned for the future,” offers David Lang, partner and co-head of KKR ANZ.
“We wish the entire AVC team continued success with PAG.”
PAG is an active investor in Australian food and consumer businesses through its three cores: Credit & Markets, Private Equity, and Real Assets. It oversees capital on behalf of nearly 300 institutional fund investors, with over US$50 billion in assets under management.
PAG Private Equity’s acquisition of AVC marks the firm’s latest local investment, following Craveable Brands, owner of iconic brands Red Rooster, Oporto and The Cheesecake Shop, and most recently Patties Foods and Vesco Foods. It sees AVC as holding “great potential” and is likely to sustain the current strategy, based in improving existing facilities and fostering organic growth, as well as strategic acquisitions.
“Our goal is to work with strong businesses and help them become even stronger in Australia,” notes Lincoln Pan, partner and co-head of PAG Private Equity, based in Hong Kong.
AVC was projected to post EBITDA for FY23 of $195 million, which is impressively higher than the $112 million forecast in a 2021 prospectus.
The deal between KKR and PAG is still subject to customary conditions, including regulatory approvals, but is expected to close late 2023. KKR and AVC were advised by Jefferies and Allens.
Sources suggest PAG borrowed $900 million across a two-tranche facility, predominantly senior debt secured through Westpac, NAB and ANZ, amongst others. PAG was reportedly advised by BofA Securities and Ashurst, and by KKR Capital Markets on the credit.
It is also understood to have been talking with Sydney-based agents HTL Property on its move into hospitality, which bodes well for continued injection into the industry by the property-driven investor.
Waterson confirmed this possibility was not a key driver of the decision by PAG, but hints that any company of AVC’s size “may be expected to have some property” on the balance sheet.
Waterson and his merry management team will stay on under the new regime.
“This is an exciting time for AVC,” he says.
“We are grateful for KKR’s strong support in scaling the business over the years, growing our employee base from 780 to 8,500 people, and creating jobs through growth and investment in our venues.
“We look forward to working with our new partners in PAG, their investment affirms the strength of the platform and our future growth potential in Australia and New Zealand.”