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Food for thought for Close

Close Investments has introduced the imperial pub company enterprise investment scheme, an EIS looking to raise up to £8m.

This EIS aims for growth through the acquisition and management of food-orientated freehold and long leasehold public houses located mainly in Central and Southern England.

The directors believe this will provide attractive acquisition opportunities and is small enough to develop a group of pubs. They will look for premises that are already big enough to trade as successful pubs or those that could be refurbished or extended to a sufficient size.

The management of the pubs will be outsourced to Oriental International, which will trade as Eat Your Heart Out. It has identified the best locations for pubs through a combination of demographics and workforce data. Each potential site within the region will be assessed to ensure that there are enough target customers to make the opportunity attractive. Workforce data will be analysed to ensure there is a prospective lunchtime market while population data will also be analysed to ensure sufficient evening and weekend target customers.

Premises must meet the existing EYHO criteria based on purchase price, character and size of building, refurbishment potential and local demographic factors. Growth will be derived from buying pubs with good prospects for increasing business and profits, growth of pub property values, refurbishments and extensions to the properties and the creation of a group of complementary pubs that would usually be valued at a price greater than their individual value.

The EIS will look for pubs that are trading at a level below their full potential because they have been mis-managed or that refurbishment will enhance trading.

The directors say the UK pub market is a well-established, mature trading sector. The introduction of new licensing laws in November 2005 that increased trading hours, was a big change and now the industry is preparing for the introduction of the smoking ban in the summer. Drink led pubs are expected to be hardest hit but the directors of this EIS say the recent example of Scotland, where smoking in pubs is already banned, demonstrated that food-driven public houses will benefit from the smoking ban.

As an asset-backed EIS, this is lower risk than some schemes because the pubs are properties, which can be sold if necessary. Asset backing is useful because unlike EIS funds that diversify across a number of companies, investors in this single EIS will put all their eggs in a basket of pubs. However, this EIS could face competition from the British Country Inns 3 EIS, which is also raising money.

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