Private equity's takeover of BrewDog Unicorn: a deep dive into the acquisition
BrewDog, the popular Scottish craft beer company, is expected to report a return to profit on an adjusted-ebitda basis in 2024, following a difficult year in 2023. The company's adjusted EBITDA was negative in 2023, resulting in a loss of £64mn on sales of £281mn.
The decline in BrewDog's valuation can be traced back to a deal with TSG Consumer Partners in 2017, which saw the Californian private equity firm invest in the company, valuing it at around $1.1 billion. However, since then, the company's valuation has taken a hit, with the theoretical value of TSG's investment now standing at over £800mn in April.
The high initial valuation expectations set by the TSG deal have been a significant factor in BrewDog's valuation decline. With such a demanding benchmark for future growth and profitability, the company has faced operational and financial challenges that have strained cash flow and investor confidence.
These challenges include difficulties maintaining rapid growth, managing costs, and navigating a competitive craft beer market and changing consumer trends. Aggressive expansion strategies, such as new bars and breweries, have also contributed to the company's financial struggles.
The decline in BrewDog's valuation has had a significant impact on shareholders. Those who invested at or near the peak valuation during or soon after the TSG deal have seen a decline in the value of their shares. This decline has been a source of concern for later investors, including crowd-funding participants, who have expressed concerns about transparency and the drop in value.
The valuation adjustment has also dampened investor enthusiasm and affected subsequent fundraising efforts. TSG controls only 23% of the voting shares in BrewDog, which means that the remaining shares, including those held by retail investors, have been significantly impacted.
In a twist of irony, the 2017 deal with TSG Consumer Partners established BrewDog founder James Watt as a unicorn founder and made his fortune. However, the deal has since become a cautionary tale, with Watt's remaining stake in BrewDog appearing to be a zero, and his pledge to give £100mn worth of stock to staff called into question.
Despite these challenges, BrewDog was founded in 2007 and grew rapidly through publicity stunts and crowdfunding campaigns. The company is now aiming to provide start-ups with a crash course on how to reach a $1bn valuation through its reality TV show, House of Unicorns, which stars Watt and is a combination of Dragons' Den and The Apprentice.
In a recent LinkedIn post, Watt described a typo in a sort code that resulted in a "life-changing" sum of £52.1mn from TSG not appearing in his bank account as expected. The episode on liquidity preference, given its role in the 2017 deal with TSG Consumer Partners, is hoped for on the show.
As BrewDog continues to navigate its financial challenges, the future remains uncertain for both the company and its shareholders. However, with the launch of House of Unicorns, the company is hoping to share its knowledge and help other start-ups avoid some of the pitfalls that have plagued its own growth.
- The management of BrewDog's business finances has been difficult due to the high expectations set by the 2017 investment from TSG Consumer Partners, causing operational and financial challenges that have affected cash flow and investor confidence.
- The decline in BrewDog's valuation, due in part to the high initial valuation set by TSG's investment, has affected not only the company but also its shareholders, including those who invested after the peak valuation and crowd-funding participants.
- In an attempt to pass on their experiences and help other start-ups, BrewDog has launched a reality TV show, House of Unicorns, where they aim to teach viewers how to reach a billion-dollar valuation in business and technology, while avoiding the pitfalls that BrewDog has encountered.
