Register, or Login to view the article
December 7, 2022 – The Debtors filed a motion requesting each of a bidding procedures order and a sale order [Docket No. 47]. The bidding procedures order would: (i) approve bidding procedures in relation to the sale of the substantially all of the Debtors’ assets (the “Sale”), (ii) authorize the Debtors to enter into a stalking horse arrangements with Project Crush Acquisition Corp LLC (the “Stalking Horse Bidder*”, $10.0mn bid), including in respect of a $300k break-up fee and a $200k expense reimbursement, and (iii) adopt a proposed auction/sale timetable culminating in an auction on January 11th and a sale hearing on January 16th. The sale order would approve the Sale. The Stalking Horse Bidder’s asset purchase agreement (the “APA”) is attached as Exhibit B to the motion.
Project Crush Acquisition Corp LLC, also the Debtors' DIP lender, is an acquisition entity created by Digital Brands Group,* NASDAQ: DBGI; “DBGI.” Digital Brands group describes itself as a "modern retail ecosystem; a collective reshaping the shopping experience by personalizing styled looks based on consumer preferences. We streamline brand discovery, craft unique personal style experiences and build a sustainable closet that delivers value and confidence with every wear.
DBGI, which had been in discussions to purchase the Debtors on an out-of-Court basis before withdrawing an existing letter of intent in favor of a replacement LOI premised on an in-Court sale at the end of November, is also the Debtors' DIP lender, with amounts outstanding under the up to $5.0mn DIP to be deducted from what is a headline $10.0mn cash bid.
Refused further financing by their senior prepetition lenders and with only DBGI in position to make an actionable bid after what was a nine-month marketing process, withdrawal of the out-of-Court LOI effectively compelled the Debtors to seek Chapter 11 shelter. DBGI's shift in strategy also came after disappointing Q3 results released mid-November which had DTC revenue down by 22% from Q3 of the previous year. This DTC drop followed what was for a while a heady period for the Debtors, who drove their online presence during the COVID-19 pandemic only to see it drop as consumers returned to their pre-pandemic, retail-based purchasing patterns.
The Debtors' declaration in support of first day motions [Docket No. 15] motion attaches a letter of intent signed by Mark Lynn on behalf of the DIP Lender. Mark Lynn is described in a recent DBGI SEC filing as "a director of our company since inception and served as our Co-Chief Executive Officer from September 2013 to the October 2018. Prior to joining us, until September 2011 he was Co-Founder of WINC, a direct-to-consumer e-commerce company which was then the fastest growing winery in the world, backed by Bessemer Venture Partners."
Mark Lynn is a also the CEO of Amass Group (he uses his Amass e-mail in contact details provided in the APA) which employs a business model very similar to that of the Debtors, albeit in respect of potentially synergistic spirits and botanical personal care product offerings.
These are busy times for the Digital Brands Group, which announced the closing of a $10.0mn public offering on December 1st, with some of the proceeds being used to "fund a portion of the cash purchase price of its Sundry acquisition." Sundry is a female apparel brand, with DBGI recently announcing a dramatically slashed purchase price (see here and here). According to press coverage (and SEC filings), DBGI "has doggedly pursued its Sundry deal amid its own financial woes," with DBGI in a number of ways on a parallel path with its present acquisition target, ie the Debtors. DBGI, which like the Debtors only recently IPO-ed, has also been flirting with bankruptcy itself, with "going cocern" language becoming something of a leitmotif in its SEC filings, including a 10-Q filed only 3 weeks ago which notes that: "These factors raise substantial doubt about our Company’s ability to continue as a going concern. Throughout the next twelve months, the Company plans to continue to fund its capital funding needs through a combination of public or private equity offerings, debt financings or other sources. There can be no assurance as to the availability or terms upon which such financing and capital might be available in the future. If the Company is unable to secure additional funding, it may be forced to curtail its business plans or file for bankruptcy protection."
On November 30, 2022, Winc, Inc. and two affiliated debtors (NYSE American: WBEV; together “Winc” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case no. 22-11238. At filing, the Debtors, who “develop, produce, and sell alcoholic beverages through wholesale and direct to consumer business channels in conjunction with winemakers, vineyards, distillers, and manufacturers” noted estimated assets of $50.3mn and estimated liabilities between $37.8mn (these are drawn from their 10-Q and are as of September 30, 2022*).
On December 7th, the Court hearing the Winc cases issued an order authorizing the Debtors to access $2.0mn in new money, debtor-in-possession (“DIP”) financing being provided by Project Crush Acquisition Corp LLC. The $3.0mn balance of what is in total of $5.0mn of requested new money DIP financing is to be made available upon issuance of a final DIP order which is scheduled to be considered at a January 6th hearing.
* The Debtors’ Q3 10-Q included a going concern warning. NB: The Debtors IPO-ed in November 2021.
Key Terms of the APA:
- Seller: Winc, Inc. and its affiliated Debtors
- Purchaser: Project Crush Acquisition Corp LLC
- Purchase Price: $10.0mn
- Bid Protections: (a) a break-up fee in the amount of 3% of the purchase price (i.e., $300k) and (b) a reasonable expense reimbursement not to exceed $200k
Proposed Key Dates
- Bidding Procedures Objection Deadline: December 15, 2022
- Bidding Procedures Hearing: December 22, 2022
- Sale Objection Deadline: December 30, 2022
- Bid Deadline: January 9, 2023
- Auction (if necessary): January 11, 2023
- Sale Hearing: January 16, 2023
- Sale Closing: No later than January 20, 2023
Asset Sale Background
The bidding procedures/sale motion [Docket No. 47] notes, “In March 2022, after considering the Debtors’ outstanding debt under, and the upcoming maturity of, the Prepetition Credit Facility and the ongoing operational and liquidity needs of the Company, the Company determined to explore strategic alternatives.
Also in March 2022, the Company engaged Canaccord Genuity Group, Inc. (‘Canaccord’), as their investment banker to explore a potential sale of the Debtors’ assets. In November 2022 the Company engaged RPA Advisors, LLC as their financial and restructuring advisor.
As part of the consideration of potential strategic alternatives, Canaccord undertook a prepetition marketing effort, and began soliciting indications of interest (each, an ‘IOI’) for the sale of the Debtors’ assets, both on an integrated basis as well as on a piecemeal basis. In particular, Canaccord crafted detailed marketing materials and assembled related diligence information for a confidential electronic data room (the ‘Data Room’) and a confidential information memorandum with the assistance of the Debtors and their other professional advisors. Canaccord developed an initial list of approximately forty-five (45) strategic and financial prospective purchasers. Canaccord circulated, via email, a detailed ‘teaser’ and description of the opportunity to acquire the Debtors’ assets to all of the prospective purchasers.
Thereafter, Canaccord worked with approximately twenty (20) interested parties to execute non-disclosure agreements (each, an ‘NDA’). Parties who executed an NDA were provided with access to the Data Room, which contained diligence information about the Debtors and their assets, a confidential information memorandum, and a process letter detailing the requirements and timing for delivery of indications of interest. Twelve (12) parties met with members of the Debtors’ management to ask questions about the Assets and the Debtors’ operations.
Canaccord responded to various inquiries and, in September and October 2022, two parties expressed interest in the Debtors and their assets. The Debtors conducted good faith, arms’ length negotiations with these prospective buyers simultaneously, and they conducted deeper diligence into the Debtors’ businesses. Given the circumstances, including the Debtors’ limited liquidity and inability to secure third party financing, Canaccord informed potential purchasers that any actionable bid would need to include cash-only consideration and bridge financing to support the Debtors’ operations through a closing of a Sale. Ultimately, only one party—Project Crush Acquisition Corp LLC (the ‘Stalking Horse Bidder’)—submitted an actionable bid for the Assets.
Initially, the Stalking Horse Bidder’s proposal provided for an all-cash purchase price and the extension of credit to fund operations until an out-of-court merger transaction could be consummated. After execution of a letter of intent (‘LOI’) and obtaining a commitment to deliver documentation for the merger transaction and bridge financing prior to the Thanksgiving holiday, the potential purchaser revised the structure of the transaction, proposing instead to consummate the transaction through a chapter 11 sale process, and provided the Debtors with a new LOI to act as a stalking horse bidder for the Assets. Facing a looming payment default under the Prepetition Credit Facility and given the limited liquidity available to the Debtors, the Debtors and the Stalking Horse Bidder pivoted to negotiating the terms of a debtor in possession financing facility to fund the Debtors’ operations, while, in parallel, working to finalize the terms of a stalking horse agreement.
Following the Petition Date, Canaccord contacted fifty (50) potentially interested parties (including certain parties that had been contacted prior to the Petition Date) regarding the Assets and a potential Sale in connection with the Chapter 11 Cases. Canaccord continues to market the Assets to ensure that the Debtors are able to obtain the highest and otherwise best value for the Assets.
The Debtors now seek to promptly effectuate a Sale of their Assets, subject to a competitive bidding process that is consistent with both the timing of the Chapter 11 Cases and the Debtors’ fiduciary duties to maximize value for their estates, stakeholders, and parties in interest.”
The Debtors’ outstanding secured debt consists of a first lien revolving credit facility with an outstanding balance of approximately $3.5 million. In addition, the Debtors entered into a revenue sharing agreement, pursuant to which the Debtors obtained an advance of approximately $2.88 million against approximately $3.26 million of future receivables. The Debtors also incur trade payables and operating expenses in connection with the ordinary course operations of their business.
As of the Petition Date, the Debtors’ outstanding obligations in connection with the foregoing are estimated at the following amounts:
Significant Prepetition Shareholders
The Debtors' Petition notes the following as holding 5% or more of their equity:
- Affiliates of Bessemer Venture Partners VIII Institutional L.P. and Bessemer Venture Partners VIII L.P.
- Affiliates of Shining Capital Holdings II L.P. and Shining Capital Management III Limited
- Affiliates of CJF Palate Holdings LLC and Cool Japan Fund Inc.
- Geoffrey McFarlane
- Brian Smith
- Xiangwei Weng
About the Debtors
According to the Debtors: “Winc is a differentiated platform for growing alcoholic beverages brands, fueled by the joint capabilities of a data-driven brand development strategy paired with a true omni-channel distribution network. Winc's mission is to become the leading brand builder within the alcoholic beverages industry through an omni-channel growth platform." Winc's common stock trades under the ticker symbol "WBEV" on the NYSE American.
Corporate Structure Chart
Read more Bankruptcy News