Bar groups are buying restaurants to counter the effect of the smoking ban

When Marston’s, the regional brewing company and pub operator, acquired a small restaurant chain called Bluu last summer, the takeover provoked barely a murmur in the markets.

In fact, few investors were aware the deal had even happened. It was so small that the company was not obliged to announce the acquisition to the stock market, and it received no national publicity.

Marston’s quietly set about incorporating three of its newly acquired restaurants, including the original in Nottingham’s Lace Market, into the group’s Pitcher & Piano division, while a fourth, in Glasgow, was closed.

Small it might have been, but this barely noticed transaction may come to be seen as a turning point in the development of the British pub industry, as it marked the start of a new trend for bar-owning companies to begin snapping up restaurant chains.

Last August Regent Inns, the company behind the Walkabout chain of Aussie-themed bars, acquired the Old Orleans restaurant chain from Punch for £26m. Ultimate Leisure, another bar group, bought a four-strong pub restaurant chain called Bel and the Dragon for £8.7m.

The biggest transaction of this kind came last month, when La Tasca became the subject of a takeover battle that was won by Laurel, the pub group owned by the property tycoon Robert Tchenguiz.

Investment bankers predict the trickle of deals may become a flood as the boundary between pubs and restaurants blurs.

Mike Dowell, managing director of Pitcher & Piano, said: “The deal to buy Bluu was a great way for us to up our repertoire on food. It gives us a step into fine dining.”

It is estimated that 80% of British pubs provide food, serving 1.1 billion meals a year – 400m more than the total British restaurant sector.

The recent spate of deals seems to be driven by two factors, one operational and one financial. The smoking ban in England, following similar moves in Scotland and Wales, is now only a week away, and pub operators believe food is one way to persuade people to continue to visit pubs.

Ian Payne, chairman of Laurel, points out that combining La Tasca with the group’s existing brands, Slug & Lettuce and Ha! Ha! Bar & Cafe, will give the group a 50-50 split in terms of food sales and drink sales. “We know that food sales go up when we have a smoking ban,” he said.

The financial motivation for pub companies is that restaurants are valued much more highly by the stock market because the sector is growing. Being seen as a restaurant business rather than a pub stock should make a company more attractive.

Jim Fallon, managing director of McQueen, a corporate-finance firm, said: “As drink sales continue to decline in Britain and the casual dining market grows by 5% to 7% a year, it clearly makes a lot of sense to employ capital in this sector. Growth in food can drive extra drinks sales.”

The question will be whether pub bosses, having acquired a taste for food, will sanction deals that are a financial stretch but will greatly strengthen their dining capabilities. Fallon thinks it is a near certainty. He said: “Taking a medium-term view, there’s no doubt that acquiring and developing casual dining businesses will create value for shareholders.”

Such deals will only further blur the distinction between the pub and restaurant. But it remains unlikely the pub will disappear altogether.