News BrewDog sells 22% stake to private equity firm TSG Consumer Partners £213m

Discussion in 'Beer News & Releases' started by StJamesGate, Apr 10, 2017.

  1. StJamesGate

    StJamesGate Poo-Bah (3,428) Oct 8, 2007 New York
    Beer Trader

    https://www.theguardian.com/busines...wdog-sells-22-of-firm-to-private-equity-house
     
  2. Vason

    Vason Initiate (160) Feb 19, 2008 Ohio

  3. Oktoberfiesta

    Oktoberfiesta Aspirant (272) Nov 16, 2013 New Mexico
    Beer Trader

    For the first time, an article that actually discloses what the founders will be taking in ($50mil each) and they still own a majority.

    If my math is correct and as that article states investors were due to make back 2800%, a person investing a lone $1,000 would be able to cash out with $28,000?

    That valuation seems absurd, considering these larger brewers are struggling with growth (@ a certain point). It's all talk about stories and BS initially. Those guys know how to talk it up. At the end of the day, its about money. I think this was done at a bad time with the opening of the USA location.

    Wasn't TSG involved with the growth of not your fathers rootbeer/Pabst? Now their "par for the course" beers will be shoved down our throats and tap lines take away from others.. Pabst isnt to be messed with.

    Off to read FB comments on Brewdogs various pages.
     
    #3 Oktoberfiesta, Apr 10, 2017
    Last edited: Apr 10, 2017
  4. jesskidden

    jesskidden Meyvn (1,246) Aug 10, 2005 New Jersey
    Subscriber

    Not necessarily, if they're playing by the US Brewers Association "craft" rules:

    The article kinda buried the lead (well, understandable since The Guardian is a UK-base publication):
    Although, technically TSG is a partner with Eugene Kaspar in the ownership of Pabst (percentages never disclosed that I've ever seen).

    :astonished: "Pabst" has been messed with since the 1980s, when the company was bought twice by other macro brewers -Heileman and then S&P - the latter pretty much destroying the company, closing breweries, letting brands die, etc. After the death of S&P's Paul Kalmanovitz, Pabst was illegally owned by charitable trust and finally sold - twice - in the 2010s. Even owning dozens of brands (after buying most of the Stroh/Heileman portfolio in 1999) the company has lost sales most every year since. Once a 17 million barrel brewer (when they had fewer than a half dozen brands) they're actually down to "under 6m bbl" that the B.A. uses to define a "small" brewer.
     
    #4 jesskidden, Apr 10, 2017
    Last edited: Apr 10, 2017
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  5. Hanglow

    Hanglow Defender (645) Feb 18, 2012 United Kingdom (Scotland)

  6. drtth

    drtth Poo-Bah (3,015) Nov 25, 2007 Pennsylvania

    Interesting.

    I suspect their are some folks in the UK feeling like they might have made a mistake in not having spent a bit of money on that original offering of "Equity for Punks" shares.

    This deal would suggest that TSG seems to think the Brew Dog expansion plans, including their US presence and planned growth, have a lot of potential for success.
     
  7. Oktoberfiesta

    Oktoberfiesta Aspirant (272) Nov 16, 2013 New Mexico
    Beer Trader

    Great info.
    I was thinking more about just the current landscape. They take "Small town" brewery/NYFRB from being in one region to almost the entire nation in every store within 2 months. They jumped on that wagon hard and used every avenue to get their products in peoples hands. I can see why BrewDogs chose TSG or TSG chose BrewDogs. Something big is in the works.
    They better have plans. With pre tax profits at just $7million, that valuation of $1billion has to be seen soon, rather than later. Like BP, I don't know what these people are thinking. I don't think I would say no either. But I'm not the type to be outlandish with comments like @Hanglow posted. I guess it's better for the 55,000 small investors to have made OUT along with the co founders. Everyone is "happy". There isn't much talk on FB.

    I'm just of the belief that alot of these breweries earn their shelf space through consumer demand. I can see TSG making a push here to get these beers everywhere, even if we dont want em.
     
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  8. drtth

    drtth Poo-Bah (3,015) Nov 25, 2007 Pennsylvania

    I'm thinking you might want to do a double check on that math.
     
  9. cavedave

    cavedave Poo-Bah (2,177) Mar 12, 2009 New York
    Beer Trader

    Hmmm, 'Punker Clowns Sell Out' would have been my headline..

    Well, if the brewery in Ohio doesn't sell enough beer here they can always do what some of the other bigs are doing or planning on doing, exporting to Europe and Asia. Oh, wait.
     
  10. Sixpoint

    Sixpoint Poo-Bah (1,551) Jul 25, 2004 New York
    Supporter Subscriber Beer Trader

    @drtth @cavedave @JackHorzempa

    There is no 2800% return for EFP shareholders.

    They are limited to selling at most 15% of their shares, and the shares apparently can only be redeemed for a maximum of 20% premium of their purchase price.

    If you bought in 2010 during the first offering, that would mean you made a 2.7% annualized return. That's a far cry from 2800%.

    What's most damaging now is your common stock is subordinate to TSG, which has what's called "Preferred Participating Equity" at a staggering 18%. What this means is TSG will get 100% of their money back, plus 18% dividends until the total amount is paid in full BEFORE any common stock payout or dividend is paid in the current structure, plus an additional 22% of any additional value created upon that.

    It is very, very rare to see preferred participating equity in these types of deals, it only is seen in venture capital or private equity, typically in sectors like tech or pharmaceuticals.

    The only way common stock shareholders get a big payout now is a sky-high future valuation and liquidation. Look for them to get sold once again (whether an IPO or another acquisition) in the next 3-7 years.
     
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  11. drtth

    drtth Poo-Bah (3,015) Nov 25, 2007 Pennsylvania

    Yeah, they were already in Asia (possibly Europe, depending) before getting around to planning to build a brewery the US.
     
  12. JackHorzempa

    JackHorzempa Poo-Bah (2,935) Dec 15, 2005 Pennsylvania
    Supporter

    Well, for those of you who have interest in percentage ownership. at least BrewDog only sold a minority interest (22%) to a Private Equity firm while in contrast both Victory and Southern Tier sold 100% to Private Equity.

    Cheers!
     
  13. Oktoberfiesta

    Oktoberfiesta Aspirant (272) Nov 16, 2013 New Mexico
    Beer Trader

    @Sixpoint Great info. So you're telling me TSG wants back shares at nearly their original value, for what is now a company valuated at $1 billion, and all the equity for punks people agreed to it because they too only saw the 2800% mark?

    They don't have to sell right? A BBC article states that of the $213 million, $100 goes to co founders, and $113 to buy back shares from early investors.
     
  14. Sixpoint

    Sixpoint Poo-Bah (1,551) Jul 25, 2004 New York
    Supporter Subscriber Beer Trader

    Its not that easy, Jack. You can be a minority owner of a company, yet still have all of the effective control and/or rights to the profits, budgeting, etc. It depends upon the governance and board of directors, classes of shares, etc.
     
  15. Sixpoint

    Sixpoint Poo-Bah (1,551) Jul 25, 2004 New York
    Supporter Subscriber Beer Trader

    No one is obligated to sell. But if you did want to sell, the most you could sell is 15% of your shares.

    The "1 billion dollar valuation" makes for a nice headline, but the real valuation is around 10x earnings. The preferred participating equity distorts the value and makes for a nice press release, but almost all of TSG's return comes from their payment-in-kind dividend here. That return will also subordinate all of the other shareholders.
     
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  16. JackHorzempa

    JackHorzempa Poo-Bah (2,935) Dec 15, 2005 Pennsylvania
    Supporter

    I guess I am not sure what you are communicating here. Are you stating that at 22% ownership that TSG will have the powers you enumerated in this sentence?

    Cheers!
     
  17. Sixpoint

    Sixpoint Poo-Bah (1,551) Jul 25, 2004 New York
    Supporter Subscriber Beer Trader

    I have not seen their corporate governance documents so I cannot say that.

    What I can say is that I've seen enough of these things to know these provisions exist and are quite common, especially with PE firms.
     
    JackHorzempa likes this.
  18. Oktoberfiesta

    Oktoberfiesta Aspirant (272) Nov 16, 2013 New Mexico
    Beer Trader

    So did they sugar coat this at all to the some 55,000 small early investors? Or is this seen as a win for them? I wasn't in the know when they started this a couple of years ago. I have never been to their bars or had their beers. Just heard about them from here every once in awhile.

    At least they didnt lose money like some kickstarter founders have done so in the past. Even some beer co-ops aren't doing so grand. So I can see how this can be perceived as a win. It makes for a great headline, but is it a good deal? I think I would hold. Whos to say they dont get wholly bought out in the near future?
     
  19. Sixpoint

    Sixpoint Poo-Bah (1,551) Jul 25, 2004 New York
    Supporter Subscriber Beer Trader

    Any time you make a return on your investment, especially in this economic environment, its a win. And you are right, Kickstarter investors rarely make an actual ROI beyond good vibes and some free merchandise.
     
  20. gcrest

    gcrest Initiate (13) Mar 9, 2009 California


    Where did you source this "apparently can only be redeemed for a maximum of 20% premium of their purchase price."
     
  21. drtth

    drtth Poo-Bah (3,015) Nov 25, 2007 Pennsylvania

    Also, as I think you were pointing out in one of your earlier posts there's some variability in the arrangements. For example, in the absence of any documentation but from the information publicly released by Dogfish Head, their private equity investors have an advisory role and probably some minority input to the governing group. Also, if I infer correctly from what has been said, there's a strong possibility that DFH rights of first buy back of the PE ownership share.

    Similarly, Lagunitas, again based on public information, has sold 50% to Heineken (a major investor but not a PE firm) but retains full control over operations of the breweries, operations, etc.

    As you say, some sort of arrangements are common but they are also apparently variable from case to case depending on the individual negotiations and final contract.
     
  22. Sixpoint

    Sixpoint Poo-Bah (1,551) Jul 25, 2004 New York
    Supporter Subscriber Beer Trader

    One of the EFP shareholders who received a penned letter via email a couple of weeks ago from the founders, which laid out the details of the transaction.

    Yes, absolutely. Every single deal is different. Although there are usually boilerplate provisions, the nuances are often tailor-made and negotiated on each side.
     
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