Sir Tim Martin discussing life on the capital markets at the IPO Conference 2024

02 May 2024

IPO conference 2024: Sir Tim Martin on life on the capital markets

The guest speaker at the Investec IPO Conference 2024 was the Founder and Chairman of JD Wetherspoon. Sir Tim Martin explained how listing his pub chain company on the stock market gave it a firm financial footing to grow and cope with challenges along the way.

 

JD Wetherspoon is one of the UK’s best-known pub chains, with close to 900 pubs. It is a uniquely British success story. Headed by outspoken Founder and Chairman Sir Tim Martin, Wetherspoons has come to occupy a unique position in the UK’s social culture over its 44-year history.

The chain is renowned for its innovation, inflation-resistant pricing, multi-generational customer base and unpretentious attitude, as well as its stewardship of British architecture. A number of the brand’s pubs are converted historic buildings, including some listed properties.

IPO pioneer

But success wasn’t overnight, according to Sir Tim. As part of his address at Investec’s 2024 IPO Conference, he explained that the 13 years following Wetherspoons’ founding were a “hair-raising” period for the business.

“Believe it or not, we always had to make a profit,” Sir Tim recalled. “Now, isn’t that unfashionable?”

Despite facing challenges in the shape of stringent licensing and planning requirements – “If you wanted to open a supermarket in the US, it took 12 weeks; in the UK, it took 12 years,” – Wetherspoons was operating close to 20 pubs after just over a decade in business. It was then, at the start of the 1990s, that the founder began thinking about an initial public offering (IPO) for the company.

“We were planning a flotation – why? I mean, it just seemed like great fun!” said Sir Tim. “It was actually quite unusual, because not many people had taken a small business and floated it on the stock market at the time.”
 

Sir Tim Martin speaking at the IPO Conference 2024
Sir Tim Martin, Founder and Chairman of JD Wetherspoon

We were planning a flotation – why? I mean, it just seemed like great fun! It was actually quite unusual, because not many people had taken a small business and floated it on the stock market at the time.

 

Coping with a tough transition to public ownership

A 1992 meeting with Wetherspoons' lending bank brought the fun to a screeching halt. Wetherspoons’ then-financiers, reeling from the effects of the UK’s forced withdrawal from the European Exchange Rate Mechanism and the resultant crisis in sterling, visited Sir Tim and announced that the chain’s overdraft was being cancelled.

“They said, ‘Tim, we’re withdrawing your £2 million overdraft.’ I said, ‘But we’re floating in six months!’ And they said, ‘Sorry – we need the money back,’” he recounted. “I said, ‘When do you want me to repay the money?’ And they said, ‘Now.’”

What followed was one of the “most stressful” periods of his life. The founder, whose personal mortgage had also “doubled” following the crash in sterling, went door to door and eventually found hope in the form of a City firm, which agreed to a financing deal for Wetherspoons. But there were strings attached.

“The lender would get 10% of the company, and they would get a 10% coupon,” Sir Tim said. “But if we didn’t float in October of that year, the coupon went up to 20%. And if we didn’t float within the next year, it went up to 30%. And that was one of my first lessons in how money can be quite expensive.”

Wetherspoons went ahead with its IPO in 1992, opening its 50th branch in the same year. There was a “palpable sense of relief,” he said, as funding pressures abated, though he now wishes more thought had been given to the price at which the firm’s shares were first made available.

“What we did financially was stupid, in many ways,” he noted. “Almost all the shares in existence were sold at 32p – if I’d been a bit more resilient, a bit less frightened of banks, we might have floated at a significantly higher price or decided to wait a few more years.”

Fuelling growth

The company kept to a brisk pub opening schedule throughout much of the 1990s. “That would have been difficult if we weren’t a public company,” he said. “Flotations are an important way of channelling capital to companies who need it.”

Though he found that running a public company reduces financial strain, he added that a host of new challenges arose for Wetherspoons following the IPO. As commercial rents began to increase, he opted to slow down on new locations – this strategy drew the ire of certain “activist fund managers” and other shareholders, he stated, who disagreed with the firm’s approach.

“It was a difficult period – [these investors] took quite a hefty bash at the citadel and demanded that we convert our pubs to brewery-style tenancies, not understanding that half of the pubs were leasehold,” he recalled. “This went on for a year to 18 months, so I went to see the boss of the biggest investor. It turned out that he went to my school, in Belfast of all places.” Following the pair’s discussion, the investor relented and withdrew its demands.
 

Sir Tim Martin speaking at the IPO Conference 2024
Sir Tim Martin, Founder and Chairman of JD Wetherspoon

Being a public company gives you a structure for the continuation of the firm outside of the family.

 

Frustrations and advantages

Certain corporate governance rules for listed companies irk him. This includes the nine-year tenure limit on Chairs and non-executives as a way to maintain independence among Board members. He takes issue with potentially losing experienced personnel. “You should always put fiduciary duty to the company above corporate governance – doing what’s best for the company,” he said.

Sir Tim said he remains pleased with his decision to take his company public. The Covid-19 lockdowns of 2020 and 2021 caused havoc for the hospitality sector and listed status helped the company cope with the upheaval. During this period, Wetherspoons was able to raise two rounds of equity funding to support the company through lockdown.

Another advantage to going public, he added, is that it provided stability of succession for the business: he had never wanted his children to feel pressured to take over, he said.

“I didn’t want to create a dynastic, family-type business,” he said. “Being a public company gives you a structure for the continuation of the firm outside of the family.”

Focus on employees

Sir Tim also pointed out that public listings can provide a degree of security for firm employees. While a private company could close down or be sold at any time, an investor-owned organisation tends to move more predictably.

Under Wetherspoon’s employee share option scheme, staff currently own about 22% of its shares. Since 2006, the company has paid £520 million in free shares and bonuses to employees.

“We’ve got over 40,000 employees, and over 10,000 who have been with the company for more than 10 years,” he said. “So, you have to be very hard-hearted if you don’t really care about what happens in the future. You want the business to be preserved, and being a public company gives you a chance of doing that.”

His parting advice to companies thinking about listing? “Weigh up the circumstances. Markets go up and down, but if you want to float, then float – don’t let it put you off.”

 

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