REG - Nightcap PLC - Acquisition of Dirty Martini and other matters

NightcapAnnouncement

09/06/2023 15:00

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RNS Number : 2923C  Nightcap PLC  09 June 2023

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.

 

 

9 June 2023

 

Nightcap plc

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

 

Acquisition of certain of the assets of Dirty Martini

 

Share subscription and issue of convertible loan notes

 

Trading update

 

and

 

Total voting rights

 

 

Introduction

 

Nightcap (AIM: NGHT) is pleased to announce that it has entered into an asset
purchase agreement to acquire certain of the assets (the "Assets") of DC Bars
Limited, the operator of the 'Dirty Martini' chain of cocktail bars ("Dirty
Martini"), and Tuttons Brasserie Limited (together the "Companies") (the
"Acquisition") for a consideration of up to £4.65 million (£4.15 million in
cash on completion and a further £0.5m payable based on certain conditions
being met). The Acquisition is being undertaken as part of a pre-pack
administration process by the Companies.

 

In conjunction with the Acquisition, Nightcap has raised a total of £5.0
million, through a subscription of 19,583,333 of new ordinary shares in the
Company (the "Subscription Shares") at 12 pence per share, being a premium of
26.3% to Nightcap's last closing mid-market share price on 8 June 2023, to
raise £2.35 million and the issue of £2.65 million new convertible loan
notes.

 

The Company is also providing a trading update in relation to its 52-week
period ending 2 July 2023.

 

 

Acquisition highlights

·      Complementary acquisition of 10 Dirty Martini bars and the Dirty
Martini brand which has significant roll-out potential

·      Strong opportunity for material synergies to be recognised across
the enlarged business

·      Five bars located across London (in Bishopsgate, St Paul's,
Monument, Hanover Square and Covent Garden) and five bars located in
Birmingham, Bristol, Leeds, Manchester and Cardiff

·      Dirty Martini provides a new complementary customer offering and
the Group's first expansion into Manchester and Leeds, key future markets for
the Group

·      With sites located in Birmingham, Bristol and Cardiff the
Acquisition complements and expands the Group's cluster model strategy

·      Consideration of up to £4.65 million for venues that generated
aggregated unaudited site level revenue and EBITDA of £23.7 million and £3.9
million respectively for 2022

 

 

Sarah Willingham, Chief Executive Officer of Nightcap, commented:

 

"We couldn't be happier to welcome Dirty Martini to the Nightcap family. These
are long-established, well-run bars that fit well with our existing portfolio
and our model of running multiple brands in clusters in London and around the
country.

 

"Dirty Martini's late-night bars operate in a similar way to ours. They have
great bars in excellent locations with impressive fitouts, following over £10
million of capital investment.

 

"We will embed the Dirty Martini site operations into our existing head office
infrastructure and expect to see synergies across the business as we continue
to grow.

 

"This is the fourth acquisition in under three years and marks yet another
important strategic step toward building the UK's leading bar group."

 

"Whilst the rail strikes have been detrimental to our current year
performance, we are extremely proud of Nightcap's successful new openings, the
growth we have achieved and the foundation we have built for the future.
Without the impact of rail strikes we would have had an exceptional year,
which bodes well for next year."

 

"With the acquisition of Dirty Martini, we have a sizeable late night bar
group with significant potential for further growth in the years ahead and we
therefore look to FY 2024 with increased confidence."

 

 

Background to and reasons for the Acquisition

 

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

 

Dirty Martini experienced tough trading conditions over the last year, in line
with the hospitality industry in general, including the negative consequences
of train strikes, the cost-of-living crisis and inflation.  The Dirty Martini
business has also struggled with significant indebtedness.  These factors
have now led to the business being put into administration and providing
Nightcap with the opportunity to acquire the Assets at an attractive price.
The Board considers the 10 Dirty Martini sites to be sound operating venues,
which will benefit significantly from being part of the larger Nightcap bar
group.

 

The Board believes that the Dirty Martini brand is a good fit with Nightcap's
existing portfolio, increasing the Group's presence in its already established
locations and expanding Nightcap's portfolio of bars into further key cities.
There has been extensive capital investment into the Assets of over £10
million and Nightcap expects to realise a strong level of short-term synergies
together with further synergies across major cost lines once the integration
has completed.

 

The Board believes that the Dirty Martini brand is a compelling and
complementary acquisition for Nightcap. It is well established and has further
significant roll out potential.

 

Nightcap has employed all staff working at the 10 Dirty Martini bars and
Tuttons restaurant as part of the Acquisition. Nightcap will not be assuming
any of the Companies' existing indebtedness and Nightcap shall only acquire
those liabilities of the Companies which transfer to it by operation of law.

 

 

Acquisition terms

 

The Companies entered into administration on 9 June 2023 and Leonard Curtis
Recovery Limited (the "Administrator") was appointed as the administrator. An
initial consideration of £4.15 million (the "Initial Consideration") has been
paid to the Administrator in cash. Nightcap, via its wholly owned subsidiary,
DMN Bars Limited ("DMN"), has agreed to pay a further deferred consideration
of up to £0.5 million, subject to the successful assignment to Nightcap of
the leases of four key sites. Nightcap is guaranteeing DMN's obligation to pay
such amounts under the terms of the asset purchase agreement. Pursuant to the
terms of the Acquisition, the Companies, acting by the Administrator, have
granted Nightcap a licence to occupy the 10 leases from today for a period of
up to 180 days and Nightcap, with the assistance of the Administrator, will
seek the assignment of all of the leases to the Group during this period.
Further announcements in relation to the longer-term position with the leases
will be made as appropriate.

 

The Initial Consideration has been satisfied fully in cash and funded by
Nightcap from a combination of the issue of: (i) the Subscription Shares at a
price of 12 pence per share to new and existing shareholders in Nightcap; and
(ii) £2.65 million of new convertible loan notes ("CLNs"), raising a total of
£5.0 million for Nightcap.

 

 

The sites being acquired

 

Dirty Martini is a leading cocktail bar brand, known for its bespoke cocktail
menu specialising in martinis, spirited atmosphere, brunch and its 'happy
hours'. The Dirty Martini ethos is to create an environment which operates
successfully at brunch, after work, through a popular happy hour, and into the
night as a late-night cocktail bar.

 

Dirty Martini operates 11 sites, including Tuttons, across 10 leases in
sought-after locations in the UK, from Covent Garden to Leeds. Nightcap
considers that Dirty Martini has significant potential for further roll-out in
key identified cities.

 

Tuttons is a British Brasserie that serves a wide demographic as a result of
its location in Covent Garden. Tuttons is popular with theatregoers given its
proximity to the West End, offering traditional British menus.

 

Dirty Martini has a complementary food offering that has been specifically
tailored to be served alongside its signature drinks, with flavours designed
not to overpower the cocktails. Dirty Martini's 'Martini Brunch' remains a
strong revenue contributor, attracting customers earlier in the day.  Dirty
Martini's core customer demographic is considered to be broadly similar to
that of Nightcap's existing brands.

 

Through the Acquisition, Nightcap will operate the following bars and
restaurant:

 

·      Dirty Martini, Bishopsgate

 

Situated in the heart of the City, Dirty Martini Bishopsgate was opened in
2013 and refurbished in 2020. The venue is based over an area of 3,627 square
feet and has an up to 325-person capacity.

 

·      Dirty Martini, St Paul's

 

Situated in the City, Dirty Martini, St Paul's represents the biggest Dirty
Martini venue in London. The venue was opened in 2014 and was refurbished in
2016. It is based over an area of 7,175 square feet and has an up to
400-person capacity.

 

·      Dirty Martini, Hanover Square

 

Situated in the West End, Dirty Martini, Hanover Square opened in 2011, the
second site to be opened under the Dirty Martini brand and was refurbished in
2015. The venue is based over an area of 3,713 square feet and has an up to
250-person capacity.

 

·      Dirty Martini, Monument

 

Situated close to London Bridge, Dirty Martini Monument was opened in 2014 and
refurbished in 2020. The venue is based over an area of 3,466 square feet and
has an up to 350-person capacity.

 

·      Dirty Martini, Covent Garden

 

Dirty Martini, Covent Garden was the first site to be opened in 2010, under
the Dirty Martini brand, and was refurbished in 2016. The venue is based over
an area of 1,002 square feet and has an up to 150-person capacity.

 

·      Dirty Martini, Cardiff

 

Situated in close proximity to Cardiff Central, Dirty Martini, Cardiff, opened
in 2016, is the largest site by size in the Dirty Martini portfolio. The venue
is based over an area of 10,086 square feet and has an up to 600-person
capacity.

 

·      Dirty Martini, Birmingham

 

Situated on Waterloo Street, Dirty Martini Birmingham was opened in 2018 and
the most recent site to be refurbished in 2022. The venue is based over an
area of 6,888 square feet and has an up to 350-person capacity.

 

·      Dirty Martini, Bristol

 

Situated in Bristol City Centre, Dirty Martini Bristol is the latest site to
open, having opened in 2021. The venue is based over an area of 3,305 square
feet and has an up to 250-person capacity.

 

·      Dirty Martini, Manchester

 

Situated in Spinningfields, Dirty Martini Manchester was opened in 2017. The
venue is based over an area of 6,954 square feet and has an up to 400-person
capacity.

 

·      Dirty Martini, Leeds

 

Situated in Leeds city centre, Dirty Martini Leeds was opened in 2017 and
refurbished in 2018. The venue is based over an area of 6,480 square feet and
has an up to 290-person capacity.

 

Further information in relation to the above venues can be found at:
https://dirtymartini.uk.com/ (https://dirtymartini.uk.com/)

 

·      Tuttons British Brasserie

 

Tuttons is a restaurant which operated from its Covent Garden location for
over 45 years. It is one of a select few sites in Covent Garden with a large,
permanent, outdoor seating area with views of the famous Covent Garden Market
and Piazza. The restaurant is based over an area of 5,630 square feet and has
an up to 202-person capacity.  Tuttons shares a kitchen with Dirty Martini
Covent Garden and the leases of these two sites are linked.

 

Further information can be found at: https://www.tuttons.com/

 

 

Financial information on the Acquisition

 

Based on unaudited management accounts for the year ended 31 December 2022, at
the aggregated site level, the Assets generated revenue of £23.7 million,
EBITDA of £3.9 million and profit before tax of £3.1 million. The Assets had
an unaudited asset value of approximately £4 million at 31 December 2022. The
associated costs of the Companies' head office and the asset value of its
lease have been excluded, as these will not be acquired.

 

 

Acquisition funding

 

 

In order to fund the Acquisition, the Company has raised funds totalling £5.0
million, from a combination of the issue of the Subscription Shares for £2.35
million and the issue of the CLNs (totalling £2.65 million) to existing
shareholders and new investors (the "Investors").

 

Nightcap has entered into subscription agreements with the Investors, issuing
in aggregate 19,583,333 Subscription Shares at a price of 12 pence per share
(the "Issue Price"), representing a premium of 26.3% to the mid-market closing
price of Nightcap's Ordinary Shares on 8 June 2023.

 

 

Further details of the CLNs

 

On 9 June 2023, Nightcap executed a convertible loan note instrument creating
£2.65 million of CLNs. The CLNs mature on 9 September 2025 (the "Maturity
Date") and are convertible at the option of the investors subject to: (i) as a
result of any conversion notice(s) being served, at least 33% of the principal
amount of CLNs outstanding immediately prior to such notice being served will
be converted; and (ii) the Company's shareholders having passed resolutions
enabling the Directors to allot and issue the resulting shares on a non
pre-emptive basis.  The CLNs are only convertible following a period of 12
months from issue, at the higher of the Issue Price or a 15% discount to the
volume weighted average share price of the Company's shares for the five
business day period prior to the Investor notifying the Company of its
intention to convert. The CLNs will bear a coupon of 10% per annum which shall
be rolled up and settled either when a conversion notice has been served or on
an Exit (as defined below) by the issue of such the relevant number of shares
at the conversion price in respect of such accrued interest amount. The CLNs
are non-transferable and are unsecured.

 

The CLNs shall convert automatically in the event of: (a) a change of control
in the Company; and (b) the sale of substantially all of the business and
assets of the Company (each an "Exit"). If the share price upon Exit is lower
than the conversion price, then any amounts outstanding in respect of the CLN
shall be converted into shares at the Exit share price.

 

Prior to any conversion notice having been served and in relation to any
outstanding CLNs prior to the Maturity Date, the Company has the right to
repay the noteholders.  In the case of early repayment of the CLNs (within
the 12-month period following the issue of the CLNs), the interest payable
shall be equivalent to 12 months accrued interest on the principal amount of
the CLNs outstanding immediately prior to such repayment. Any amount of the
CLNs outstanding at the Maturity Date will be repaid by the Company together
with accrued interest up to such date.

 

 

Trading update

 

Whilst the cost-of-living crisis has affected the entire hospitality industry,
as indicated in Nightcap's previous updates, the influence of train strikes
has been the main source of disruption to the Group's trading in the 52-week
period ending 2 July 2023 ("FY 2023"). Recovering the lost revenues and EBITDA
from the significant level of train strikes held across the UK, particularly
during the key 2022 Christmas trading weeks, has proved a particular
challenge.  Management currently estimates that the 28 train strike days over
FY 2023 have cost the Group a total of approximately £2.9 million in revenue
and £1.9 million in EBITDA. In relation to FY 2023, the Board currently
expects to report revenues that are broadly in line with current market
expectations, with adjusted EBITDA* expected to be below current market
expectations.

 

Despite macroeconomic and train strike related challenges, the Board continues
to be impressed with the resilience of Nightcap's brands and its customers.
This provides assurance of the strength and full potential of Nightcap's
business when allowed to trade uninterruptedly, especially when combined with
the Dirty Martini Assets, and the Board looks forward to the future with
confidence. In the absence of further rail strikes or other major
interruptions, the Board remains positive about the outcome for the 52 week
period ending 30 June 2024 due to the organic growth they anticipate in all of
the Group's bar brands and the positive contribution from the Dirty Martini
Assets.

 

* IAS 17 Earnings before interest, tax, depreciation, amortisation, share
based payments, exceptional items, acquisition related transaction costs and
pre-opening costs.

 

 

Admission to AIM

 

Application will be made to the London Stock Exchange for the Subscription
Shares to be admitted to trading on AIM ("Admission"). It is anticipated that
Admission will occur, and dealings will commence in the Subscription Shares at
8:00 a.m. on or around 15 June 2023.

 

The Subscription 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 Subscription Shares, the Company's enlarged issued
ordinary share capital comprises 217,883,990 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
217,883,990.

 

 

Interests in the Company

 

Interests of Directors and persons discharging managerial responsibilities
(PDMRs)

Following the issue of the Subscription Shares, Nightcap's Directors now have
the following percentage interests in the Company's issued ordinary share
capital:

 

                              Following the issue of the Subscription Shares

                              Number of Ordinary Shares held  Percentage of issued ordinary share capital
 Director
 Michael Willingham-Toxvaerd  12,552,501                      5.76%
 Sarah Willingham-Toxvaerd    21,686,584                      9.95%
 Tobias Van der Meer          9,050,000                       4.15%
 Lance Moir                   360,000                         0.17%
 Thi-Hanh Jelf                180,000                         0.08%

 

In addition, certain of Nightcap's persons discharging managerial
responsibilities ("PDMRs") now have the following percentage interests in the
Company's issued ordinary share capital:

 

                      Following the issue of the Subscription Shares

                      Number of Ordinary Shares held  Percentage of issued ordinary share capital
 PDMR
 John James Goodman*  16,032,157                      7.36%
 James Hopkins        8,105,810                       3.72%
 Thomas Kidd          3,936,594                       1.81%
 Jim Robertson        111,484                         0.05%

 

*Includes 901,312 Ordinary Shares held by CGCC Ltd which is beneficially owned
and controlled by John James Goodman.

 

Other interests

Following their participation in the Subscription, individuals below have the
following percentage interests in the Company's issued ordinary share capital:

 

                     Following the issue of the Subscription Shares

                     Number of Ordinary Shares held  Percentage of issued ordinary share capital
 Name
 Mark Irwin          10,291,667                      4.72%
 Michael Wainwright  6,658,333                       3.06%
 A Minto             12,976,024                      5.96%

 

 

For further enquiries:

 Nightcap plc

 Sarah Willingham / Toby Rolph / Gareth Edwards                             email@nightcapplc.com

 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/)

 Jos Pinnington / Amrit Nahal / Tony Quirke (Sales and Corporate Broking)

 Bright Star Digital (PR)                                                   https://www.brightstardigital.co.uk/ (https://www.brightstardigital.co.uk/)

 Pam Lyddon                                                                 +44 (0) 7534 500 829

                                                                            pamlyddon@brightstardigital.co.uk (mailto:pamlyddon@brightstardigital.co.uk)

 

 

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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