British Honey builds distilling scale

Gin and spirits supplier British Honey Company (LON: BHC) is acquiring Union Distillers for an initial £8m in cash and shares. This adds to the range of brands that Aquis Stock Exchange-quoted British Honey owns and provides scope for significant expansion.

The deal will give British Honey greater scale and Union Distillers will be able to use the group’s software. The group will also have greater opportunities in the UK off-trade.

The enlarged group production capacity will be three million bottles, seven million cans and five million miniatures. There is potential for cross-selling brands.

Union Distillers has £250,000 in cash, while British Honey had £2.4m at the end of 2020 – although it has been declining because of continued cash outflows. A British Honey share issue raised £4.59m at 110p a share, while a convertible loan note issue added a further £1.63m. The convertible lasts for five years and has an interest charge of 4.5%. The conversion price is 126.5p a share.

Union Distillers chief executive Mark Gamble will join the British Honey board.

The share swap deal with List Distillers in the US continues to be delayed because of Covid-19. The new longstop date is 28 July. The trading relationship continues with the companies selling each other’s products.

Union Distillers

Leicestershire-based Union Distillers has been trading for more than eight years and has its own still and bonded warehouse. A new canning line will be installed.

The company has a range of gins, vodkas, a spiced rum, an absinthe and an espresso vodka liqueur under the Two Birds brand. There is also the Harborough Gin brand that is focused on the lower end of the market and it is sold through Lidl. Union Distillers also produces for third parties. That could also provide further growth.

There could be up to £2m of earn-out consideration payable in cash and shares – at a minimum price of 110p each – on the target brand revenues from the Union Distillers products.

The deal should be earnings enhancing and cash generative. In the year to September 2020, revenues were £4.94m and pre-tax profit £1.13m. NAV was £1.52m.

British Honey is currently loss-making, so the profit contribution from Union Distillers will help to at least reduce that loss. Nearly one-third of revenues are coming from online customers.

British Honey joined the Aquis Stock Exchange last march and raised £4.25m (£3.88m after expenses) at 110p a share. Some of that cash has been invested in the business and the benefits of the increased capacity will be more apparent in the next financial year.

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Andrew Hore
Andrew Hore is the publisher of AIM Journal, which is an online monthly publication covering the Alternative Investment Market.