Battling massive debt, craft beverage accelerator Mighty Craft (ASX: MCL) has been on a mission to divest its businesses to stay afloat. In keeping with that, the Company has signed a deal to sell the assets linked to Mismatch Brewing Company and The Hills Distillery (78 Degrees) to a third-party buyer, led by a consortium of experienced publicans in the Australian hospitality industry.
As part of the transaction, the assets associated with Mismatch and 78 Degrees, including the brands and all intellectual property, trading names, contracting arrangements, inventory, plant and equipment, and licences, will be sold to the Buyer for cash consideration totalling not less than $7.2 million.
The sale is conditional upon the transfer of all liquor licences and the parties using reasonable endeavours to recommend certain personnel associated with the businesses accepting offers of employment made by the Buyer. It also includes the assignment of the leases for the Mismatch Brewhouse venue and the Mismatch and 78 Degrees production facility in South Australia.
In H1 FY24, Mighty Craft’s revenue was $28.8 million, up 25% from H1 FY23. At the same time, it recorded a loss of $51.3 million. The Company took a number of non-cash write-downs in H1 FY24 due to the reclassification of several businesses as held for sale. The total impact of these write-downs was $40.7 million. In its FY23 results commentary, the Company underscored its need to significantly reduce debt, targeting $25 to $45 million in divestments.
Mighty Craft outlined a three-pronged strategy to the ASX to address its financial woes: cost reductions at headquarters, immediate debt reduction, and corporate structure optimisation. Selling larger assets like Mismatch and 78 Degrees directly contributes to debt reduction and streamlines its structure.
Moreover, on July 31, 2023, the Company executed a binding agreement to sell 100% of Jetty Road Brewery. On December 7, 2023, Mighty Craft completed the sale of the Hills Cider business for $3 million.
The Company’s short-term focus remains reducing net debt through the ongoing divestment program. It also recently entered into an agreement with Deale and Elisa Stanley-Hunt, the original founders of Slipstream Brewing, to return its share in the company and exit its investment in Slipstream.
As for the Mismatch and 78 Degrees deals, about 50% of the sale proceeds will be used to repay MCL’s senior lenders, serving as a partial settlement of its existing debt facilities, while the remaining half will be used to support the business’s ongoing operations.
While the timing of the sale’s completion is uncertain, the parties are currently targeting a settlement on or before 31 May 2024. With significant leadership changes in place and a future that hangs in the balance, Mighty Craft is hedging its bets on a streamlined business to steer it in a new direction.
Alinda is a Business Reporter for The Sentiment
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