Good Spirits Hospitality has walked away from its planned $21.3 million acquisition of Nourish Group, saying it was unable to secure an equity partner to finance the deal.
The deal, first announced in November last year, would have seen the NZX-listed company take ownership of The Chamberlain, Soul Bar & Bistro, Talulah, The Brit, Andiamo, Shed 5, The Crab Shack (Wellington), Pravda Café and Grill, and the Jervois Steak House venues in Auckland and Queenstown.
Good Spirits (GSH) said its major shareholder, Nomura subsidiary Pacific Dawn, supported the deal and had agreed to provide the debt proportion of the transaction, but interest from potential equity partners had been materially affected by the inability of investors to travel to New Zealand and uncertainty around future Covid restrictions.
The company had hoped to settle the deal in the first quarter of 2022, however this was pushed back to the second quarter in late March due to funding issues.
As well as acquiring the venues, which would have doubled its portfolio to 20 bars and restaurants, it would have also taken Nourish co-owner and director Richard Sigley onto its board.
Sigley founded GSH’s current portfolio under the Better Bay Company banner with GSH chief executive Geoff Tuttle. Tuttle and Sigley have hospitality interests together outside of GSH.
Chair Duncan Makeig said the directors of Good Spirits Hospitality were extremely disappointed the deal wasn’t going ahead.
“We were at an advanced stage, with an investor who could see the strength in our growth strategy and approach. However, the possibility of future Covid restrictions in the New Zealand hospitality sector proved too great a barrier for final agreement of terms being reached with the investors.”
The board said it would continue to focus on rebuilding the business’s revenue and profitability following two years of limited trading, saying it had gained momentum under the Orange Covid containment setting.
Good Spirits struggled financially before the pandemic, which exacerbated losses with all pubs closed to patrons for extended periods.
In late March, it announced it had secured another interest waiver from Pacific Dawn, meaning instead of paying interest for the March 31 quarter, the interest would be capitalised onto the loan, subject to further interest.
It secured a similar waiver for the quarter to December 31.
Its liabilities exceeded assets on its half-year balance date, with total assets of $48.96m and total liabilities of $50.64m, largely made up of its Pacific Dawn debt.
The company posted a $2.95m loss in the six months to December 31, compared with a $121,154 loss in the comparable period.
Revenue, including the government wage subsidy, dropped 35% to $7.94m and the company also incurred due diligence costs of $1.16m in relation to its $21.3m conditional purchase of Nourish Group and 10 of its venues. GSH also launched a new pub in Auckland’s Viaduct Harbour, The Fox.
Government restrictions blamed
It said the loss was due entirely to the government-imposed restrictions throughout the reporting period and their impact on the ability to operate, particularly during peak season.
“The lockdowns in our key Auckland market and isolation requirements have impacted on operations resulting in forced or unplanned venue closures, supply chain concerns, wage and price inflation, tight labour market, and contributing to the hesitancy of the public to attend hospitality venues.
“While the half-year reporting period has been severely affected, this will pass and we look forward to the restrictions coming to an end, at which time we believe we will be well placed to capitalise on GSH’s compelling market offering together with Nourish Group acquisition opportunity and other opportunities to grow that will present themselves in future.”
Good Spirits shares last traded at 7.5c, down 1.32% in 12 months. Source: NBR