Struggling brewer Mighty Craft hopes a merger with Better Beer will offer a rescue plan

The embattled alcohol producer is in talks to merge with Better Beer but has warned if the deal doesn’t come off, the future looks bleak.

Mighty Craft is hoping a merger with Better Beer will be its saviour.

Struggling alcohol producer Mighty Craft is in talks to merge with Better Beer and raise capital off the back of that deal but warns that if the move doesn’t succeed, the outlook for the company is uncertain.

Mighty Craft has been struggling with a large debt load and has been offloading assets over the past year or so in a bid to repair its balance sheet.

The company listed in 2019 and made a series of acquisitions for a combination of cash and equity which it has been unwinding rapidly, the most recent being the sale of South Australian-based Mismatch Brewing Company and spirits company 78 Degrees to former Carlton & United Breweries boss Peter Filipovic for a knockdown price of $7.2m.

Those assets were part of a wider, $47m cash and equity buyout orchestrated by Mighty Craft in 2021.

Mighty Craft in its entirety is now worth less than $5m.

The company’s one third stake in Better Beer has been performing exceptionally strongly, however, with Mighty Craft saying on Tuesday Better Beer was gaining market share and had exhibited growth of 18.2 per cent in the third quarter.

“The company has sold 12 million litres of Better Beer in the 12 months to March 2024 and expects FY24 sales to be in line with this number,” Mighty Craft told the ASX on Tuesday.

Across the group, revenue fell 22 per cent compared with the previous corresponding period to $19.8m, and net operating cashflows were $2.4m.

Mighty Craft said it paid down $2.3m in senior debt during the quarter, and about half of the proceeds of the Mismatch and 78 Degrees sale would also go toward debt repayments.

However, “the company remains in breach of various loan covenants and the ongoing support of Pure Asset Management is contingent upon its satisfaction with the company’s progress towards further divestments and debt reduction,” Mighty Craft said.

The company is now in talks with the majority owners of Better Beer about acquiring all of that company, “in exchange for the issue of shares in the company to the Better Beer shareholders, and a subsequent capital raise”.

“The company has signed a non-binding letter of intent with Better Beer to explore the feasibility of this option and is in preliminary discussions with the relevant stakeholders, including Pure, around the terms, the valuation of Better Beer relative to the divestment

program and the overall viability of the transaction.”

However, Mighty Craft warned that sealing this deal was likely crucial to its survival.

“In the event that the company is unable to formalise an agreement with Better Beer and Pure within the coming months, the board consider that it would likely be difficult to secure the additional debt or equity funding that would be required to allow the company to continue its operations,” it said.

Mighty Craft chair Grant Peck said the recent asset sales went some way towards balance sheet repair, but more needed to be done.

“The company’s debt levels, however, will remain unsustainable and divestments of the non-Better Beer assets alone will not be sufficient to restructure the balance sheet to the extent required,” he said.

“While the board continues to assess all available options, the company’s strategic focus has shifted towards seeking a potential merger with Better Beer.

“Discussions with the relevant stakeholders are at a very early stage, and there is no certainty of any transaction eventuating.”

Mighty Craft shares were steady at 1.3c on Tuesday.