M&B buys Ha Ha outlets as its shifts more into food

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The pub group Mitchells & Butlers is to spend £19.5m buying the restaurant chain Ha Ha Bar and Grill in an effort to expand its higher-margin food business.

The deal comes a month after Mitchells announced that it was set to sell 333 of its pubs to the private equity firm TDR, and reinforces, it says, the group's strategy of gaining a larger share of the higher-margin food industry.

"Whilst small, this acquisition illustrates our ability and our strategy to develop sites to create value for Mitchells & Butlers shareholders," chief executive Adam Fowle said. "It will also provide an excellent opportunity to grow significantly two strong brands, All Bar One and Browns."

The deal will give Mitchells 22 new restaurants, which will be converted into several of its existing brands, including All Bar One, Browns and Harvester.

Earlier this year, the company staged a strategic review, which concluded with a decision to bolster the food division. A source close to Mitchells said yesterday that the company would retain its remaining pub estate, but would not rule out further restaurant acquisitions. The Ha Ha agreement will be funded through cash.

Analysts argued that the group would be able to extract more sales out of its new sites after the rebranding. "Ha Ha has some good sites but we judge the brand to be relatively weak compared to [Mitchells & Butlers'] brands and the sites will be converted to the Browns and All Bar One formats over the next six months at a cost of £8.5m," said Citigroup's James Ainley.

The City is waiting for the company's trading update, scheduled for Thursday. Mr Ainley said he was expecting, "a robust performance for the year to [the] end [of] September". He warned, however, that "wet" (drinks) sales – will have been hampered by poor weather.

Mitchells is not the only group seeking food businesses. Earlier this month, Carluccio's, the Italian restaurant chain, agreed to a £90m takeover by Landmark Group.