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Craft Brewers Chug Away Heady Pressure by Bankers to Sell

Discussion in 'Beer News' started by dauss, May 7, 2013.

  1. dauss

    dauss Member

    Location:
    Colorado
    http://www.bloomberg.com/news/2013-...g-away-heady-pressure-by-bankers-to-sell.html
  2. dennis3951

    dennis3951 Member

    Location:
    New Jersey
  3. frazbri

    frazbri Member

    Location:
    Ohio
    While Boston Beer, the largest craft brewer, shipped almost 29 million cases in 2011, AB InBev shipped 538 million cases of Bud Light alone.
    Not much to add, but numbers like that make you realize just how small "craft" brewers are compared to the multinationals.
  4. SammyJaxxxx

    SammyJaxxxx Member

    Location:
    New Jersey
    "New Jersey was among four states that lost breweries."
    I don't know how many they lost. I don't know of one of significance.
  5. premierpro

    premierpro Member

    Location:
    Michigan
    There are a number of reasons why buisnesses fail. One of them could be over extending yourself with the bank. Remember when banks loan you money there is usualy a personal guarantee that the buisness owner signs. In efect if you do not make your payments guess who will take over your buisness!
  6. jesskidden

    jesskidden Member

    Location:
    New Jersey
    Yeah, I thought that was a weird stat, too. There was briefly a brewery - Great Blue Brewing at
    Suydam Farms in Somerset that did not renew it's license in 2012, and the "beer marketing company/ contract brewer" Hometown with those goofy "NJ" "NY" and "PA" brands also apparently gave up - not sure when exactly on that one.
  7. LCB_Hostage

    LCB_Hostage Member

    Location:
    Pennsylvania


    So they're going to try to find brewers who produce wheat beers and IPAs, huh? Well, that ought to narrow down the field quite a bit.

    It would be one thing if the analysts they're quoting seemed to have a clue about how the industry works, but their commodity-based attitudes and ignorance make it clear that they would quickly ruin any operation they managed to get their hands on.
    bozodogbreath likes this.
  8. rlcoffey

    rlcoffey Member

    Location:
    Kentucky
    While he is right on that, on the other hand, there are those who refuse to finance expansion with debt, so they have to sell equity (or cash flow it).
    cnbrown313 likes this.
  9. rlcoffey

    rlcoffey Member

    Location:
    Kentucky
    Any chance they are including brewpubs?
  10. sherm1016

    sherm1016 Member

    Location:
    Wisconsin
    While I agree that this is the case, it's never made any sense to me. Debt is almost always cheaper than equity and is generally more readily available than surplus cash flows.
  11. LCB_Hostage

    LCB_Hostage Member

    Location:
    Pennsylvania
    I agree. Plus, the bank doesn't want to run a brewery. They'd rather help find you a way to work things out (not always possible, but still). Partners and investors are generally a much bigger pain in the ass.
    sherm1016 likes this.
  12. rocdoc1

    rocdoc1 Member

    Location:
    New Mexico
    I'm still waiting on somebody to buy my garage based homebrewery.
  13. dennis3951

    dennis3951 Member

    Location:
    New Jersey
    I misread sorry. Port City was the name of the Brew Pub in Newark that closed. It was down near the "ROCK".
  14. rlcoffey

    rlcoffey Member

    Location:
    Kentucky
    Debt is death to small businesses. Once you are the size of Sierra Nevada or New Belgium or Stone or Bells and are doing multi million dollar expansions, debt probably makes sense.

    But for a smaller brewery, or any small business, it can crush you. It was one of the big reasons for the brewery failures in the 90s. Even more recently, while I dont know the details, Terrapin converted debt to equity; it opened up cash flow Im guessing.

    Of course, a lot of it has to do with being able to maintain control AND being able to put it reasonable terms so that the minority owners can get bought out.
    premierpro likes this.
  15. kdb150

    kdb150 Member

    Location:
    Pennsylvania
    Well isn't he a dick. There's more than one way to do business. Craft brewing has gone against the economic currents and managed to grow substantially over the past 5 years while most other economic segments tanked horribly, and those conditions won't last forever. There was and still is a huge pent-up supply of money to lend, but get back at us in ten years after hundreds of breweries have failed nationwide, and we'll see if the cash is still so easy to come by.
    cnbrown313 likes this.
  16. dauss

    dauss Member

    Location:
    Colorado
    Do you know why debt is cheaper than equity? Interest is tax deductible.
  17. rlcoffey

    rlcoffey Member

    Location:
    Kentucky
    Do you know why equity is less risky than debt? Equity doesnt require regular payments, even when unprofitable.
    bozodogbreath and premierpro like this.
  18. mhksuccess

    mhksuccess Member

    Location:
    California
    Makes me want to go out and support Koch making some barrel aged garbage for $18 pint and pumping it out as fast as he can Quigentti series is was slacking on quality but he is cashing a big pay check so it is ok
    Stone is the budweiser of craft beer
  19. hopfenunmaltz

    hopfenunmaltz Member

    Location:
    Michigan
    The BA says 25 brewpubs and 18 micros closed in 2012. MI had some of those. It would be good to know where those all were.
  20. LCB_Hostage

    LCB_Hostage Member

    Location:
    Pennsylvania
    You're free to hate, and your opinion is just as valid as mine. But, I for one think he makes some pretty damn good beer and I'm happy to hear he plans to continue doing so instead of handing the keys to some shitheel investment banker who's knowledge of craft beer begins and ends with the one Blue Moon he has on the weekend. If you read the article, you saw that none of these guys know (or care) a thing about the quality of the product. They're just looking to hop on the gravy train for as long as it runs, then hop off once they've aimed it toward the nearest cliff. I didn't see anything suggesting Koch was pulling down an obscenely high salary. In fact, I'd be willing to bet MY salary that he's making a lot less than most of the venture capital buzzards dying to acquire Stone.
  21. dougfur

    dougfur Member

    Location:
    New York
    I like what he's saying and I like some of his beers a lot, but I never buy them because of price. They are awfully expensive around here...
  22. sherm1016

    sherm1016 Member

    Location:
    Wisconsin
    In looking back through the old BeerPulse reports, here's the deal on Terrapin:
    1. The loan was taken out with MillerCoors Tenth & Blake Division in Mar 2011 and was used to buy out investors that they did not want in their business anyone.
    2. The loan was then converted to equity in Oct 2011.
    So Spike and John traded one set of equity investors for another, with the temporary loan in the middle. Had they not seen eye to eye with Tenth and Blake, I'm guessing they would have stuck with the Debt financing. But they did see eye to eye, so yes, they did convert the loan to free up cash flow.

    I agree that at some level, equity-only financing is the correct way to finance a small business. But you listed four of the top 10 craft breweries, and I would wager that many breweries much smaller than SN/Bells/NB/Stone use some level of debt financing.
  23. rlcoffey

    rlcoffey Member

    Location:
    Kentucky
    I KNOW that many smaller than them use debt financing. Im not sure its a good idea for them. And I wont try to declare some bright line of size where it makes sense.

    I mean, in the long run, if it works, it works. But I also know it was part of the reason for so many breweries failed in the late 90s.
  24. LCB_Hostage

    LCB_Hostage Member

    Location:
    Pennsylvania
    If when you say equity financing, you're talking about issuing shares to family, friends and customers/supporters of the brewery, that's fine. But that's not really what the article cited is about. It's about taking money from venture capatilists/investment bankers or large, multinationals. And that kind of money normally comes with all kinds of strings attached. They aren't just buying shares to support the brewery, with the hopes that someday they might be worth a little more than they paid for them. These people are looking to make a profit and they want it sooner rather than later. So their contracts typically include benchmarks and triggers (say not failing to meet or exceed average industry growth for two straight quarters) that give them the ability to come in and start making changes to increase profitability (and product quality be damned).

    While it's true that you will always (well, short of bankruptcy) have to pay off loans, once you discharge the debt, the bank is out of your hair. And really, whether it's a loan or a sale of equity, if you're taking a pile of money from someone, you should be pretty sure you can turn it into a bigger pile, or morally, you have no business taking the money in the first place, right? As to your last point, the kind of investors cited in the article normally set the terms, and they aren't letting you buy them out without giving them a sizable return on their investment.

    Bottom line, if you have a reasonably stable business and you need an infusion of capital to expand and expect that expansion to make you more profitable, I'd go with a loan. If you're struggling and you need money to keep you head above water, then I'd consider selling equity. Who knows, all those investment bankers might be able to teach you something to help your business survive. :)
  25. Hanzo

    Hanzo Member

    Location:
    Virginia
    It's so easy for Koch to say that now, but were banks lining up to throw money at him when they first became popular and needed to expand?
  26. BorisKarloff

    BorisKarloff Member

    Location:
    Ohio
    SO BRAVE.
  27. sherm1016

    sherm1016 Member

    Location:
    Wisconsin
    Perhaps the debt financing was part of the problem for some, but from everything I've read (I was 20 or so at the time), the real problem in the late 90's was that many of the failed brewers were very focused on marketing while making very mediocre beer. It works for BMC because of their size, control of distribution, etc., etc. But for a small player, I think it is a recipe for failure, regardless of the type of financing you use. I think many of today's small "beer-marketing" companies will ultimately suffer the same fate.
  28. TheLostGringo

    TheLostGringo Member

    Location:
    Connecticut
    There's no right answer here, not a contest to win. There are reasons to use both methods and each business needs to decide what is best for them and their situation.
    beerme411 likes this.
  29. rlcoffey

    rlcoffey Member

    Location:
    Kentucky
    I agree, which is why I said that debt probably makes sense for the big guys doing the huge expansions.
  30. rlcoffey

    rlcoffey Member

    Location:
    Kentucky
    Absolutely true, which is why it is important to pick investors wisely.

    Ive personally dealt with all three scenarios:

    1. Debt
    2. Venture Capitalists
    3. Private investors who arent looking to make a quick killing

    I will take #3 any day.

    #1 and #2 both have their places but in the SMALL business scenario, I would avoid both.
  31. rlcoffey

    rlcoffey Member

    Location:
    Kentucky
    That was some of it.

    Some had initial success then took out debts to expand, built "real" breweries and then the craft growth went flat. Without the projected growth, they didnt have the cash flow to pay the debt and they went under.

    As in anything like this, there is more than one reason. Marketing companies, mediocre beer, debt financing all had their part to play.
  32. LCB_Hostage

    LCB_Hostage Member

    Location:
    Pennsylvania
    First everyone (me included) beating on Jim Koch in the thread about his comments on hop bombs, now everyone dumping on Greg for saying he doesn't think brewers should be too quick to jump in bed with investment bankers or BMC, Inc.

    It seems like the name Koch really brings out the venom in BAs these days. :oops:

    While it's possible Greg's forgetting his roots, I will say that with interest rates at historic lows, there's never been a better time to finance expansion through loans. It's not exactly free money, but it's about as close as it's ever been in my lifetime. I'd personally hate to see any of my favorite brewers enter into equity financing deals where they cede control of their product to anyone whose first and only goal is monetizing it for profit.
    beerme411 likes this.
  33. opwog

    opwog Member

    Location:
    Minnesota
    Oh, if it was only that easy. It sounds like you haven;t tried to get a business loan over the past several years or if you have had a positive experience doing so, that you come from a more privileged position than most in regards to collateral. For a lot of people and companies, this hasn't been an option.
  34. LCB_Hostage

    LCB_Hostage Member

    Location:
    Pennsylvania
    It's been a few years (2007, so, yeah, pre-financial meltdown) and I wouldn't say they were throwing money at me, but at lest at that time, I found that local bankers were far more pleasant and helpful than the national 'mega-banks." Collateral is always a concern, but that's why I included the condition that if you have a reasonably stable business that you're looking to expand.
  35. opwog

    opwog Member

    Location:
    Minnesota
    For most small businesses, this doesn't even matter much anymore. Unless you have a lot of tangible equipment for which the liquidation value is close to or exceeds the loan amount, colateral now means that you get a $500k loan if you (or the primaries, collectively) have $500k in personal assets (usually property) to put on the line. I have intimate knowledge with this process with my own and a few other businesses in an industry outside of beer and I also happen to have a lot of inside details for a few entities within the industry, as well, where very well run and thriving companies have not qualified for loans based entirely on the lack of personal assets to balance out the loan. Most banks don't even look at business plans, forecasts, etc. until they see that there are personal assets to be put up in a personal guarantee to the bank, equal to the loan amount.
  36. Jazzpha

    Jazzpha Member

    I thought this was going to be a thread talking about heads of craft brewing companies gathering in a room and chugging a surplus of Heady Topper together, followed by wild shenanigans.

    Alas, t'was not to be.
    beerme411 and JrGtr like this.
  37. Providence

    Providence Member

    Location:
    Rhode Island
    Articles like these make me want to support Stone more than I already do (which is considerable). Keep it up Koch!
  38. RandyV

    RandyV Member

    Location:
    Arizona
    Respectfully disagree. Sam Adams is the bud of craft beer, IMHO.
  39. RandyV

    RandyV Member

    Location:
    Arizona
    Check that. Not fair. Budweiser is the bud of craft beers. Nuff said.
  40. Brad007

    Brad007 Member

    Location:
    Vermont
    That last sentence is quite ignorant.

    And it disrespects a brewery that has never really given a damn about the Buttwipers on the beer landscape. Just read the edict on a bottle of Arrogant Bastard.

    I shall always raise a pint to Stone!
    Dowlers likes this.

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