The Aberdeenshire brewer will no longer command a premium price, writes TERRY MURDEN
The likely sale of brewer and pubs chain BrewDog should come as a surprise to no one, except that it has taken this long for the company to admit it needs help. It is a sobering milestone for those who clung to the hope that it might continue to expand and even pursue that long-considered flotation on the stock exchange
Talk of a £1 billion, even £2bn, IPO is now a distant dream and, after accounting for its debt, a sale could raise little more than the £213 million that its private equity company TSG paid for a 23% stake in 2017.
Because of the way that deal was structured, with TSG giving itself preference shares, the thousands of equity punks who were persuaded to “invest” in the Aberdeenshire company are unlikely to get any of their money back.
TSG was always going to do what private equity companies do and seek an exit after first loading the business with debt and ensuring it is first in the queue when a buyer comes along.
Whatever the company’s current problems, it would be churlish not to recognise what the co-founders of BrewDog have achieved. I remember back in 2007 being at a function at a hotel in Park Lane, London, and being invited to meet a young man in reception who wanted to talk to me about his new business. He said he wanted to build the biggest brewery in Scotland. “Bigger than Tennent’s?” I said, sceptical of his ambitions.
I remember he didn’t smile and that he just stated his case as if giving a witness account. I admit remaining sceptical. But he proved me wrong. His name was Martin Dickie and he and James Watt built a global business that extended into pubs and hotels and employed a lot of people. What happened next… the maverick advertising campaigns, the clashes with the City establishment… attracted an army of like-minded rebels and a lot of publicity, but the business depended on supplying a product that people wanted.
Some of its beers were not universally popular, its management style took a kicking, and as the task of running a big business began to take its toll the co-founders have been forced to lean on the corporate community it set out to oppose and even abuse.
It brought in City heavyweight Allan Leighton as chairman and the sale of a minority stake to TSG marked a recognition that the 100,000 punk investors who had chipped in about £74m through crowdfunding exercises was not enough to keep the company afloat.
Before the TSG investment, Watt and Dickie owned 35% and 30% of BrewDog, respectively. As part of the deal, they sold a portion of their shares to TSG — pocketing £100 million between them and aware that the agreement would leave their army of punk fans empty-handed when TSG came to sell.
Neither is now active in the business but they do retain shares in it. There has been talk that Watt is looking to buy the company back.
In the meantime, the brewing industry has changed. BrewDog was part of a revolution in craft beer which spawned lots of other breweries, many of them small scale, but as a cluster capable of changing drinking habits. However, there has been a decline in alcohol consumption, particularly among the young and health conscious. Prices have risen, making it less accessible to many consumers.
There were announcements last week on difficulties facing the sector from fellow Scottish brewer Innis & Gunn and the Dutch giant Heineken. Innis & Gunn founder Dougal Sharp warned about the impact of rising costs on the future of the British pub and said a £10 pint would become the norm. Heineken said it would be cutting 6,000 jobs in response to declining sales.
The spirits industry has been touched by similar problems. Diageo, which owns Guinness and Johnnie Walker whisky, has suffered declining sales and decided to bring in former Tesco boss Dave Lewis to turn the business around.
For BrewDog, an outright sale or break-up are the most likely outcomes, though an IPO should not be discounted entirely. One option still available to TSG would be to convert its holding into shares, though in the current market they would almost certainly be priced quite low.
A shrinking market and consumer base may limit the number of interested buyers now being courted by advisers AlixPartners. One name mentioned to me some time ago was Coors. However, a buyer will see the continuing losses – £36.6m last year – and demand a competitive price to take it on.
Terry Murden was Scotland Editor and Business Editor at The Sunday Times, Business Editor at The Scotsman, and Business and City Editor at Scotland on Sunday. He is now Editor of Daily Business
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