Revolution Bars, LON:RBG, the AIM-listed, Lancashire-based pub and bar operator is to initiate a restructuring programme. The embattled operator of 80 bars and gastropubs – much loved by ‘90s students – has had a tough run since the Coronavirus pandemic.
The group initially opened up a series of bar and music venues in the north of England in the mid-1990s, and then expanded its brand nationally in the coming decade. Apart from its main Rɘvolution brand (with Vodka as the main promoted beverage), the group runs the Revolución de Cuba (Rum) and Peach Pubs brands.
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The company recently published its interim results to the end of December 2023, (on an IFRS16 basis) the company had a stronger half year than in 2023, with total sales for the first half of GBP82.3m compared to GBP76m in the first-half of 2023. From that Revolution derived an operating profit of GBP7.2m, 132.3% increase on the year before.
Loss turned into profit
Earnings were down 9% to GBP8.9m, but the company managed to turn a GBP100,000 loss into GBP3.1m profit. That said, net debt was up 8% y-o-y to GBP20m.
However, it’s the longer-term optics which are the concern. Revolution Bars, like many hospitality businesses was severely affected by the pandemic, having to shutter its business premises. Once the world came out of the pandemic lockdown, it went straight into an inflationary cycle with War in Ukraine affecting energy and raw materials prices. The inflation led to recession and a cost-of-living crisis, with consumers cancelling luxuries, like a night out on the town, in favour of keeping the lights on and buying groceries.
Moreover, demographically, younger people – the primary target market for Revolution – are going out to bars less than their preceding demographic cohorts, due to cost and culture, and in response to the cost-of-living crisis the government is recommending a blended 11% increase in the minimum national living wage, adds to Revolution’s costs.
Christmas was good for the group, but since the turn of the year, trade has been a lot less brisk, which unfortunately for the group and sector has been a longer-term trend. This has led to management initiating both a Restructuring Exercise and a Formal Sale Process as well as a seeking new funds.
Dealing with the selling the business isn’t a new thing for Revolution Bars. Seven years ago, Deltic Group (now known as Rekom UK), a hospitality investor, tried to buy the group, but Deltic’s proposal was rejected by management, with the group saying it preferred following-up a potential GBP101m acquisition by Stonegate Group, the UK’s largest pub company. This never materialised.
Revolution Bars open to offers
Now Revolution is open to offers, appointing Cavendish and FTI Consulting as advisors who will help run the formal process, which as the group gained dispensation from Rules 2.4(a), 2.4(b) and 2.6(a) of the Takeover Code, allows potential suitors to approach the company without publicly identifying, or be subject to the 28-day deadline for so long as it is participating in the Formal Sale Process.
In a statement to the market, Revolution Bars said it: “intends to conduct a targeted process and any party interested in participating in the Formal Sale Process or the M&A Process will, at the appropriate time, as a condition to participation in the Formal Sale Process or the M&A Process be required to enter into a non-disclosure agreement with the company on terms satisfactory to the board…” However, the group did disclose that as of the launch of the process, that Revolution was not in any discussions with any interested parties regarding a potential acquistion of the business.
In terms of the restructuring process, in response to external pressures, Revolution would be seeking to raise up to GBP12.5m (GBP10.5m through placement and GBP2m through open offer) in new equity capital, placing up to 389 million and a subscription of 661 million ordinary shares and a placing and open offer of up to just over 201 million ordinary shares at 1p per ordinary share.
Last week (11th April) Revolution published an update, announced the results of its bookbuild where subject to, inter alia, the necessary resolutions being passed at the General Meeting scheduled for 2nd May and other conditions that in aggregate, 1,050,000,000 New Ordinary Shares are to be issued pursuant to the Firm Placing and Subscription at the Issue Price, raising gross proceeds of GBP10.5 million, and a minimum of 50,000,000 New Ordinary Shares are to be issued pursuant to the Placing and Open Offer at the Issue Price, raising minimum gross proceeds of GBP0.5m. This will increase to a maximum of 201,292,455 New Ordinary Shares, or approximately GBP2m, depending on shareholder uptake under the open offer.
Advisor, Cavendish, conditionally placed with investors and subscribers 1,050,000,000 Firm Placing Shares and Subscription Shares at the Issue Price. The Firm Placing Shares and Subscription Shares are not subject to clawback and are not part of the Placing and Open Offer. Additional to this, Cavendish placed 50 million open offer shares with investors at the issue price, however this tranche will be subject to clawback to satisfy valid applications by qualifying shareholders under the open offer.
Further details are being sent in a circular to shareholders today (15th April). The exercise was backed by Revolution directors, who collectively subscribed to 12,050,000 New Ordinary Shares at the Issue Price in the Firm Placing or Open Offer.
Revolution shares opened at 1.594p and had fallen to 1.5p by 10:00. Over the year-to-date the company’s shares have fallen 71.5%. A year ago, Revolution was trading at 5.9p, had a bit of a rally up to 7.4p mid-May 2023, but over one-year is down nearly 75%.
Institutional backing
The chain secured GBP9.5m backing from hospitality investor, Risk Capital Partners, Robus Recovery Fund and existing shareholders, but will exit 18 mainly Rɘvolution-branded loss-making sites (six already closed) and impose a rent reduction on 14 further outlets to help them return to profitability.
To improve the group’s appeal, Revolution will start its refurbishment programme from 2026, but shelve any expansion for the time being. The company will also, given new investment, expect to make changes to the makeup of its board later this year. Revolution shares were suspended on AIM for a time as it delayed the publication of its results whilst it agreed the particulars of the Sale Process and Restructuring, but came back to trade following the publication of the interims.
Revolution has a transformational next couple of months ahead of it. We will be watching the company’s progress.
