Craft beverage company Mighty Craft (ASX:MCL) has gone into a trading halt today, after announcing a $47 million acquisition of beer and spirits brand owner Adelaide Hills Group (AHG), and a subsequent capital raising.

The agreed figure is reported to have valued AHG at 5.7x its forecast FY22 EBITDA.

The acquisition will comprise $27 million in cash, and $20 million to be paid in new Mighty Craft shares issued to AHG’s vendors at 35c per new share.

The deal will be transformational for Mighty Craft, as it is expected to drive up its combined group revenue to $78.7m in FY22, and $6m of EBITDA (excluding transaction costs).

The Mighty Craft share price closed at 37c on Wednesday.

Who’s the Adelaide Hills Group?

AHG comprises four established and distinct companies offering craft spirits, craft beer, craft cider and a destination distillery.

It also offers a cellar door, restaurant and function centre in Adelaide Hills, located in the Lot 100 Venue just 40 minutes from central Adelaide.

Its brand portfolio includes The Hills Cider Company, the whisky and vodka distillery 78 Degrees, and Mismatch Brewing, South Australia’s largest independent craft beer operator.

The company is well known for its world class distilling talent, winning the International Distiller of the Year in 2020, and World’s Best Grain Whisky at the World Whiskies Awards in 2021.

Rationale for the acquisition

Mighty Craft believes the AHG acquisition is strategically aligned to its existing portfolio, which will accelerate its ambition to become a leading player in craft spirits and particularly the craft whisky market.

It is expected that MCL’s production capacity will grow significantly after the acquisition to 1.5 million bottles in FY22, making it one of the largest independent craft spirit producers in Australia.

AHG also boasts a cost-effective production brewery renowned for making craft beer profitably, providing Mighty Craft with access to production cost savings.

The deal is set to transform MCL profitability, as it looks to break even by the second half of FY22.

Path to profitability

Having listed in 2019, Mighty Craft is a craft beverage “accelerator”, investing in early and mid-stage craft breweries and distilleries around Australia.

Starting with just one investment (Jetty Road), Mighty Craft has since purchased six fledgling breweries and four distilleries.

Its most recent investment was the purchase of Brisbane brewery Slipstream for $1.5 million.

In all, the company commmands 1,750+ distribution points, managed mainly through its logistics network partnership with Bevchain.

But the main topic for investors has always been MCL’s profitability, which it has not been able to achieve.

In the latest quarter for example, the company delivered an EBITDA loss of $2.2 million.

Today’s deal however is expected to improve its underlying EBITDA in FY22 to $6m.

The company is raising $29 million for the acquisition, which will be voted on at the company’s general meeting to be held in early July.


Mighty Craft share price today: