Acquisition of Barrio Familia Ltd

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 Strategy¹ 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 Strategy¹ 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/  

· 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/  

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 March 2019	52 week period ended 31 March 2020	52 week period ended 28 March 2021	13 week period ended 29 September 2019	13 week period ended 26 September 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	(1.0)	0.3	0.7
* 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 E1 6JE and The Yard to the East of Arches at 468-470 Kingsland Viaduct, London EC2A 3AY	Lease of main premises  expires on 31 January 2036. Lease of external Yard expires on 11 August 2028.	Lease of main premises is within the security of tenure provisions of Landlord & Tenant Act 1954 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 and Plant and Storage room, Part 1st Floor, 4 Kingly Court, London	Leases expire on 24 March 2033.	Leases are contracted out of the Landlord & Tenant Act 1954

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) Nick Naylor / Alex Brearley / Piers Shimwell (Corporate Finance) Matt Butlin / Amrit Nahal / Tony Quirke (Sales and Corporate Broking)	[phone] www.allenbycapital.com
The Romans (Financial PR) Courtney Hamilton-Foad (Account Manager)	https://www.wearetheromans.com/ [phone] [e-mail]

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.

 

END

 

 

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