It wasn’t supposed to end like this.
When BrewDog announced its last Equity for Punks funding round in 2021, shares in the business were listed for sale at £30, implying a punchy valuation of about £2bn for the Scottish beer company. Plans for an IPO were on ice due to the pandemic, but early-stage investors had seen the value of their shares multiply by thousands. It seemed they needed only to bide their time for an eventual payout.
Now, BrewDog has been put up for sale by restructuring firm AlixPartners and could be split up and sold off in piecemeal parts, following five years of consecutive losses. The news means the 220k investors that have collectively ploughed £75m into supporting the business’ growth could be left empty-handed.
So, where did it all go wrong?
The TSG elephant
When BrewDog first turned to crowdfunding in 2009, the premise was simple. Rather than go down the traditional investment route, BrewDog founders James Watt and Martin Dickie allowed anyone to buy ordinary shares in the company. Its first round raised £750k from more than 1,300 people, helping fund early-stage growth and creating a loyal fanbase – the ‘equity punks’ – who were rewarded with discounts, exclusive merchandise and an invite to its annual AGM in Aberdeen.
However, in 2017, BrewDog sold a minority stake to private equity firm TSG for £213m, with Watt and Dickie receiving a payout of around £100m. The deal created a new class of shares called ‘preference shares’. Unlike ordinary shareholders, holders of these shares (TSG) were promised an 18% compound return on their investment in the event of an exit such as a sale or IPO.
BrewDog’s private equity partner was therefore effectively ‘guaranteed’ its shares would continue to grow in value by 18% per year until the business was sold – and that it would be paid out before any of the equity punks received a penny.
Slowing sales
Suffice to say, BrewDog has not grown in value by 18% annually in the years since. But even as sales have slowed for a variety of reasons (the pandemic, shifts in consumer habits, the controversy surrounding James Watt – take your pick), the value of TSG’s shares in BrewDog has continued to swell. Last April, it passed the £800m mark.
Not even BrewDog’s most ardent fans could plausibly argue the business is now worth that much. A small auction of privately held BrewDog stock on the Asset Match platform in September 2022 indicated a valuation of around £900m, but since then BrewDog’s sales have flatlined and the business has posted pre-tax losses of £59m and £36.6m in 2023 and 2024 respectively.
Efforts have been made to correct course. Watt stepped down as CEO in 2024, and the business has closed underperforming bars, cut jobs and shut down its spirits arm – likely to have been a drag on profitability. But, having ploughed a further £20m into BrewDog last year, TSG now appears to have run out of patience and wants out.
Fire sale
Given AlixPartners specialises in rapid-fire, business-critical M&A and restructuring – and documents seen by The Grocer show the sale is likely to be conducted by an administrator rather than on a solvent basis – this looks like bad news for equity punks.
If BrewDog ends up being sold via administration, Watt, Dickie, TSG and other shareholders will forgo the ability to veto any transaction. The administrators will be duty bound to chose the deal that represents the best outcome for creditors, with secured creditors getting what they are owed first.
BrewDog’s net debt stands at £240m, and although core debt excluding lease obligations is likely to be lower, this will still take a hefty chunk of any sale price (unless a buyer willing to take on existing debts is found). Meanwhile, thanks to the deal struck in 2017, TSG will also likely get a slice or all of the £800m it is owed.
So already a sale price in excess of £1bn would be needed for any other shareholders to get anything. For a non-solvent sale of a business with annual turnover of less than £400m, such a figure is completely fanciful.
BrewDog break-up
A more likely scenario is that the business is broken up and sold piecemeal to extract maximum value for creditors. Mitchells & Butlers and Stonegate Group have been mooted as possible buyers for some or all of the bar business, while other multinational brewers could look pick up BrewDog’s breweries in the US, Australia and Germany.
But the fate of what remains – BrewDog’s brands, IP and production facility in Scotland – is harder to predict. Rumours have surfaced in recent weeks that Watt could look to buy part or all of the business, setting up the prospect of BrewDog’s former founder seizing back control of the business on the cheap – at the expense of the shareholders who backed his vision in the first place.
Surely not even Watt could be so dastardly…
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