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/

·      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:

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:

*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:

For further enquiries:

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

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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.