REG - Nightcap PLC - Acquisition of Barrio Familia Ltd

NightcapAnnouncement

22/11/2021 07:05

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RNS Number : 0463T  Nightcap PLC  22 November 2021

 

This announcement contains Inside Information for the purposes of Article 7 of
EU Regulation 596/2014 (which forms part of domestic UK law pursuant to the
European Union (Withdrawal) Act 2018).  Upon the publication of this
announcement this Inside Information is now considered to be within the public
domain.

 

 

22 November 2021

 

Nightcap plc

("Nightcap", the "Company" or the "Group")

 

Acquisition of Barrio Familia Ltd

 

 

Nightcap (AIM: NGHT) is pleased to announce that it has acquired the entire
issued share capital of Barrio Familia Ltd ("Barrio Familia") and its
subsidiaries (the "Acquisition").  As a result of the Acquisition, the board
of Nightcap (the "Board") expects that the Group's results for the 53 weeks
ending 3 July 2022 will be significantly ahead of current market expectations.

 

Through the Acquisition, Nightcap has become the operator of an additional
five bars, which comprise: i) four Latin American-inspired, Tequila-led,
cocktail bars in popular areas of London which trade under the 'Barrio' brand;
and ii) a high end '60s themed members' cocktail bar which trades under the
'Disrepute' brand in London's Soho area (collectively the "Barrio Bar
Group").

 

The Board believes that the Barrio bar brand captures a growing demand for
Latin-inspired, Margarita and Tequila focussed bars and has significant UK
rollout potential, similar to Nightcap's existing bar brands.

 

The consideration paid to the Vendors (as defined below) is £4,935,000 and
comprises: i) a net cash amount of £3,628,000; and ii) £1,307,000 which has
been satisfied by the issue of 5,682,609 new ordinary shares of 1 p each in
the Company ("Ordinary Shares") (the "Consideration Shares") at a price of 23
pence per share.

 

 

Highlights:

·      Complementary acquisition of the Barrio family of bars and brand

·      Four Latin American-inspired, Tequila-led, cocktail bars in
London's popular Shoreditch, Soho, Brixton and Angel areas

·      High end '60s themed members' cocktail bar which trades under the
Disrepute brand in London's Soho area

·      The Board considers that the Barrio bar brand provides a new
complementary customer offering with significant UK roll out opportunity

·      The Board considers that Barrio represents an exciting entry
point into the Margarita and Tequila based drinks market, which has strong
growth potential within the UK

 

·      Global market data compiled by CGA Strategy(1) suggests that
consumers' interest in Tequila is at an all-time high, with on premise sales
of Tequila making it the third fastest growing spirit behind rum and gin in
the UK

 

·      As a result of the Acquisition, the Board expects that the
Group's results for the 53 weeks ending 3 July 2022 will be significantly
ahead of current market expectations and believes that the Acquisition will be
earnings enhancing for Nightcap

 

 

Sarah Willingham, Chief Executive Officer of Nightcap, commented:

 

"I am absolutely delighted that Nightcap has acquired Barrio Familia, which
includes Barrio's four Latin American-inspired cocktail bars and the '60s
themed members' cocktail bar, Disrepute.

 

"When Nightcap was founded, one of my goals was to acquire a bar group that
has the potential to maximise on the winning combination of Margaritas and
Tacos - a personal favourite of mine! Over the past year, Nightcap has closely
observed the significant growth of the Tequila market with great interest, and
we believe that this Acquisition has significant potential for UK-wide
expansion.

 

"Nightcap has been fortunate enough to have had a strong first year, and we
are so pleased to be heading towards the end of 2021 with another fantastic
concept in our portfolio. As always, we would like to thank our stakeholders
for their continued support, all our amazing staff, and our wonderful
customers for continuing to bring their energy to Nightcap's bars. We look
forward to providing further updates regarding our plans for Barrio Familia!"

 

 

Background to and reasons for the Acquisition

 

Following the acquisition of The Cocktail Club (formerly The London Cocktail
Club) in January 2021 and the Adventure Bar Group in May 2021, the Board is
pleased to announce the acquisition of the Barrio Bar Group, in line with
Nightcap's strategy of making selective acquisitions within the drinks-led
premium bar segment of the UK hospitality sector.

 

The four Barrio bars bring a Latin American-inspired, Tequila-led, cocktail
bar concept into the Group, representing a new dedicated customer offering for
Nightcap. The Board believes that the four existing Barrio bar sites in
popular areas of London demonstrate that this brand has significant nationwide
roll out potential, similar to Nightcap's existing bar brands.

 

The Board believes that, as a result of the Acquisition, the Group's results
for the 53 weeks ending 3 July 2022 will be significantly ahead of current
market expectations and that the Acquisition will be earnings enhancing for
Nightcap.  The Board also believes that, in the medium term, there will be
opportunities for synergies between the Barrio Bar Group and the Group's
existing bar brands, especially in relation to sales and marketing and
opportunities for purchasing synergies across certain major alcohol lines.

 

Ferdie Ahmed founded the Barrio Bar Group in 2007 with the first bar site
opening in Angel, followed by the Soho site in 2011, a Shoreditch site in 2012
and finally the Brixton site in 2015. In 2016, a different concept, Disrepute,
a luxurious, high-end cocktail bar, was established in Soho.

 

Ferdie Ahmed will continue to work for the Group via a 12 month consulting
agreement which the parties may agree to convert to full employment after six
months. More recently, a professional senior management team has been brought
in to manage the Barrio Bar Group brands, as the other original co-founders
have stepped back from management roles. The Board is excited to welcome the
Barrio Bar Group team and expects to retain and incentivise management going
forward.

 

 

The Barrio Bar Group's bars

 

The Barrio branded bars are Latin American inspired and represent a colourful
clash of cultures, serving up street food, cocktails and music until late.
Barrio's drinks offering is Tequila-led, including custom Margaritas and other
Latin-themed cocktails.  The Board considers that the Barrio bars represent
an exciting entry point into the Tequila and Margarita market, which the Board
believes has strong growth potential within the UK.  An April 2021
publication by CGA Strategy(1) suggests that consumers' interest in Tequila is
at an all-time high, with on premise sales of Tequila making it the third
fastest growing spirit behind rum and gin in the UK.  On 30 September 2021,
drinks giant Diageo reported that organic net sales of Tequila grew by 79% in
its fiscal 2021 year.

 

(1 )Cocktails and trade-ups can unlock global growth in tequila sales, CGA
Strategy, 9 April 2021.

 

A selection of DJs play at weekends across the Barrio bars, with the Soho and
Shoreditch bars supporting further DJ nights earlier in the week.  The bars
also have regular live music features, from samba bands to house bands playing
funk, soul and Latin covers of popular music.

 

In the last financial year unaffected by COVID-19, being the 52 week period
ended 31 March 2019, over 90% of Barrio Bar Group's sales were from the sale
of drinks. The Barrio Soho, Barrio Shoreditch and Barrio Brixton sites have
kitchens and offer a Latin-inspired menu.

 

In the last 18 months, the Barrio Bar Group has continued to increase its
regular events, such as 'bottomless' brunches held primarily during the less
busy afternoon hours during the weekend. Customers can buy event tickets,
typically at £40 per person for a two hour slot, with the option of
continuing on in the bar as it opens for normal trade after the afternoon
events. The Board believes that these types of events have had a positive
impact on the Barrio Bar Group's growth post-COVID-19, as consumers have
gotten used to pre-booking events.

 

Through the Acquisition, Nightcap has become the owner and operator of the
following bars:

 

·      Barrio Shoreditch

 

Situated in Shoreditch High Street, Barrio Shoreditch represents the biggest
Barrio venue with the highest sales. The venue has several different themed
areas and is based over a ground floor and significant garden area, with an up
to 200 person capacity, which represent a total of 6,600 sq ft, plus a
basement back of house and head office area.  Barrio Shoreditch has a 1:30 am
license from Mondays to Sundays.

 

·      Barrio Soho

 

The Barrio Soho site is located in the popular Poland Street area and is based
over a 1,200 sq ft ground floor and basement venue that has a 00:45 am licence
from Mondays to Saturdays and a 22:30 pm licence on Sundays.

 

·      Barrio Brixton

 

Barrio Brixton is a 2,600 sq ft ground floor venue, including an outside and
inside dining area. The venue has a 2:00 am licence on Fridays and Saturdays
and a licence until midnight from Sundays to Thursdays.  Barrio Brixton has a
weekend brunch offering with an earlier start to tap into the local market.

 

·      Barrio Angel

 

Barrio Angel is based over a 1,600 sq ft ground floor venue and has a 3:00 am
license from Mondays to Saturdays, with a 00:30 am licence on Sundays.

 

Further information can be found at: https://www.barriobars.com/
(https://www.barriobars.com/)

 

·      Disrepute

 

Disrepute represents a different concept to Barrio, being a '60s inspired
deluxe members' cocktail bar.  The venue is based over a 1,300 sq ft basement
site, which was previously known as The Kingly Club and, before that, The
Pinstripe Club.  The venue also has non-member 'walk in' capacity, depending
on availability. The venue has a late licence and is open until 3:00 am every
night except Sunday.

 

Further information can be found at: https://www.disrepute.co.uk/
(https://www.disrepute.co.uk/)

 

The Barrio Bar Group's head office, which is located in the basement of the
Shoreditch site, has also been acquired pursuant to the Acquisition.

 

 

Financial information on the Acquisition

 

The Barrio Bar Group's unaudited sales for the 52 week period ended 28 March
2021 were significantly impacted by the substantial periods of the UK
Government's COVID-19 restrictions over that period.  In the last financial
year unaffected by COVID-19, being the 52 week period ended 31 March 2019, the
Barrio Bar Group showed unaudited sales of approximately £7.0 million and
unaudited EBITDA of approximately £1.0 million.  In the 52 week period ended
31 March 2020, the Barrio Bar Group showed unaudited sales of approximately
£7.2 million and unaudited EBITDA of approximately £0.7 million.  However,
the Board believes that a more normalised, adjusted historical version of
Barrio Familia's unaudited EBITDA for the 52 week period ended 31 March 2020
would be approximately £1.0 million***.

 

As with The Cocktail Club and the Adventure Bar Group, the Barrio Bar Group
has traded well since the reopening of indoor hospitality on 17 May 2021,
showing a 23% increase in sales in the 13 weeks to 26 September 2021 relative
to the comparative period in 2019, when there were no COVID-19 restrictions in
place.

 

As at 28 March 2021, the unaudited total assets of the Barrio bars, Disrepute
and the Barrio Bar Group's head office were approximately £4.1 million (31
March 2020: approximately £3.7 million).

 

Further unaudited historic financial information for the Barrio Bars and
Disrepute, plus the Barrio Bar Group's head office costs, is as follows:

 

                                        52 week period ended 31  52 week period ended 31                            13 week period ended 29 September 2019  13 week period ended 26 September 2021

                                        March 2019               March 2020               52 week period ended 28

                                                                                          March 2021
                                        (unaudited)              (unaudited)              (unaudited)               (unaudited)                             (unaudited)
                                        £m                       £m                       £m                        £m                                      £m

 Sales*                                 7.0                      7.2                      0.9                       1.9                                     2.4

 EBITDA**                               1.0                          0.7 ***              (0.7)                     0.2                                     0.6

 Operating profit/(loss)                0.7                      0.4                                                0.3                                     0.7

                                                                                          (1.0)

 * Sales are drink and food sales and do not include income relating to
 supplier retrospective discount payments or grant income.

 ** EBITDA is earnings before interest, tax, depreciation and amortisation for
 the relevant period.

 *** The Board does not consider that Barrio Familia's unaudited EBITDA for the
 52 week period ended 31 March 2020 of approximately £0.7 million, as stated
 above, is representative of Barrio Familia's business, given that: i) its bars
 were forced to close for a proportion of March 2020 and their trade tailed off
 in this month before the UK Government's hospitality closure in March 2020;
 and ii) it includes the costs of directors of Barrio Familia who will not be
 employed by the Group going forward.

 Barrio Familia's unaudited EBITDA for the 11 month period to 23 February 2020,
 which is not considered to be affected by the COVID-19 pandemic, can be
 adjusted so that it is presented on an annualised basis, which is equivalent
 to an annualised unaudited EBITDA figure of approximately £0.8 million.  A
 further adjustment of approximately £0.18 million can be made in respect of
 the removal of the costs of directors of Barrio Familia who will not be
 employed by the Group going forward.  Taking these adjustments into account,
 the Board believes that, for illustrative purposes only, a more normalised,
 adjusted historical version of Barrio Familia's unaudited EBITDA for the 52
 week period ended 31 March 2020 would be approximately £1.0 million.

 The normalised, adjusted historical version of Barrio Familia's unaudited
 EBITDA for the 52 week period ended 31 March 2020 is proforma financial
 information and addresses a hypothetical situation and, therefore, does not
 represent Barrio Familia's actual financial position or results or expectation
 of its financial position or results. It should not be considered to be a
 forecast, and, for the avoidance of doubt, is not what the Board expects
 Barrio Familia to achieve in the financial year ending 27 March 2022 or any
 following financial period. It is provided for illustrative purposes only and
 solely on the basis of the adjustments set out above. The normalised, adjusted
 historical version of Barrio Familia's unaudited EBITDA for the 52 week period
 ended 31 March 2020 is an Alternative Performance Measure (see the end of this
 announcement for the definition).

 

 

Acquisition structure, consideration and debt

 

Nightcap has entered into an agreement to acquire the entire issued share
capital of Barrio Familia (the "Share Purchase Agreement").  Barrio Familia
is a holding company for several subsidiaries within which the leases for
Barrio Familia's bars are held.  The consideration paid to the vendors, being
Anastasis Kyriacou, Ferdose Ahmed, Satbir Ghuman, Sidham Trading Limited and
Mathew Bailey (together the "Vendors") pursuant to the Share Purchase
Agreement is £4,935,000 and comprises: i) a cash amount of £4,138,299 (of
which £510,299 has been applied by Nightcap in settling the outstanding
balances on Barrio Familia's directors' loan accounts); and ii) £1,307,000
that has been satisfied by the issue of 5,682,609 Consideration Shares at a
price of 23 pence per share.  The consideration is subject to adjustment
pursuant to a completion accounts process.

 

There are two bank loans from NatWest Bank ("NatWest") to Barrio Familia
totalling £1,855,758. Nightcap has agreed to repay £300,000 of these loans
and conditional on this NatWest has consented to the change of control of
Barrio Familia such that the remaining balance of these loans will remain in
the Barrio Bar Group. Barrio Familia has been acquired with existing cash
resources remaining in the business post completion that are at least
equivalent to the full amount of the NatWest loans.

 

 

Lock in and orderly market arrangements

 

The Consideration Shares are subject to undertakings given to Nightcap not to
dispose of such Consideration Shares at any time prior to the first nine
months from 21 November 2021 (the "Completion Date") (the "Lock-in Period").
Certain specified and customary exceptions apply to this obligation.
Furthermore, the Consideration Shares are subject to undertakings given to
Nightcap to only dispose of such Ordinary Shares through the Company's broker
or as the Company's broker may reasonably require, so as to ensure an orderly
market in the Ordinary Shares, for the period of nine months following the
expiry of the Lock-in Period.

 

 

Property and lease schedule of the bars being acquired

 

 Bar                Address                                                                          Time remaining on lease                               Security of tenure
 Barrio Angel       Ground Floor premises at 45 Essex Road, London N1 2SF                            Term expires on 9 May 2024.                           Lease is within the security of tenure provisions of Landlord & Tenant Act
                                                                                                                                                           1954

 Barrio Soho        Ground Floor and Basement premises at 6 Poland Street, Soho W1F 8PS              Term expires on 15 December 2029.                     Lease is within the security of tenure provisions of Landlord & Tenant Act
                                                                                                                                                           1954

 Barrio Shoreditch  Ground Floor and Basement, 141-143 Shoreditch High Street, Shoreditch, London    Lease of main premises  expires on 31 January 2036.   Lease of main premises is within the security of tenure provisions of Landlord
                    E1 6JE and The Yard to the East of Arches at 468-470 Kingsland Viaduct, London
                                                     & Tenant Act 1954
                    EC2A 3AY

                                                                                                     Lease of external Yard expires on 11 August 2028.

                                                     Lease of external Yard is contracted out.

 Barrio Brixton     Ground Floor, 30 Acre Lane, Brixton, London                                      Term expires on 16 February 2030.                     Lease is within the security of tenure provisions of Landlord & Tenant Act

                                                     1954

 Disrepute          Part Ground Floor and Basement, 4 Kingly Court, Kingly Street, London W1B 5PW    Leases expire on 24 March 2033.                       Leases are contracted out of the Landlord & Tenant Act 1954
                    and Plant and Storage room, Part 1st Floor, 4 Kingly Court, London

 

 

Admission to AIM

 

Application has been made to the London Stock Exchange plc for the
Consideration Shares to be admitted to trading on AIM ("Admission"). It is
anticipated that Admission will occur, and dealings will commence in the
Consideration Shares at 8:00 a.m. on or around 25 November 2021.

 

The Consideration Shares rank pari passu in all respects with the existing
Ordinary Shares of the Company and therefore will rank equally for all
dividends or other distributions declared, made or paid after the Completion
Date.

 

 

Total Voting Rights

 

Following the issue of the Consideration Shares, the Company's enlarged issued
ordinary share capital comprises 191,157,801 Ordinary Shares with voting
rights. The Company does not hold any Ordinary Shares in treasury. Therefore,
the total number of Ordinary Shares in the Company with voting rights is
191,157,801.

 

 

For further enquiries:

 Nightcap plc

 Sarah Willingham / Toby Rolph / Gareth Edwards                          c/o We Are The Romans

 Allenby Capital Limited (Nominated Adviser and Broker)                  +44 (0) 20 3328 5656

 Nick Naylor / Alex Brearley / Piers Shimwell (Corporate Finance)        www.allenbycapital.com (http://www.allenbycapital.com/)

 Matt Butlin / Amrit Nahal / Tony Quirke (Sales and Corporate Broking)

 The Romans (Financial PR)                                               https://www.wearetheromans.com/ (https://www.wearetheromans.com/)

 Courtney Hamilton-Foad (Account Manager)                                +44 (0)7402 911 817

                                                                         Nightcap@wearetheromans.com (mailto:Nightcap@wearetheromans.com)

 

 

Forward Looking Statements

 

This announcement includes statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements can be
identified by the use of forward-looking terminology, including the terms
"believes", "estimates", "plans", "anticipates", "targets", "aims",
"continues", "expects", "intends", "hopes", "may", "will", "would", "could" or
"should" or, in each case, their negative or other variations or comparable
terminology. These forward-looking statements include matters that are not
facts. They appear in a number of places throughout this announcement and
include statements regarding the Board's beliefs or current expectations. By
their nature, forward-looking statements involve risk and uncertainty because
they relate to future events and circumstances. Investors should not place
undue reliance on forward-looking statements, which speak only as of the date
of this announcement.

 

Website hyperlinks

 

For the avoidance of doubt, the contents of websites and any websites
accessible from hyperlinks in this announcement are not incorporated into and
do not form part of this announcement.

 

Alternative Performance Measures

 

Alternative Performance Measures are financial measures of historical or
future financial performance, financial position, or cash flows, other than a
financial measure defined or specified in IFRS, being the applicable financial
reporting framework in respect of the Company.

 

In order to make a full assessment investors should read the whole of this
announcement and not rely solely on the Alternative Performance Measure, which
should be considered in addition to, and is not intended to be a substitute
for, or superior to, the other historical financial information within this
announcement. Certain of the components used within the Alternative
Performance Measure relate to past performance.  Past performance is not an
indication of future results.

 

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