Friday, December 2, 2011

BrewDog Equity for Punks Part I -- Want to Own a Brewery?

BrewDog is at it again. Or, more accurately, BrewDog is at it all the time and this is the latest thing they are up to: raising capital for a new expansion and an eco-friendly brewery.

Perhaps readers will roll their eyes at this move. You might argue that the punks are now wearing suits and quite literally selling out. Isn’t all this against their stick-it-to-the-man punk ethos? Not so fast. Knowing BrewDog you can bet that they will do things their way and this is confirmed just by reading the title of their pitch: “Equity for Punks”. Few could use such a phrase while sounding credible but they pull it off.

Despite BrewDog’s spunky, fly by the seat of your pants attitude, the reality is that they are a shrewd and well planned operation. They have cultivated ire and media coverage as well as they have cultivated fandom for their beers. They are astute business people and their beers  have made incredible inroads since their humble beginnings back in 2006 in Fraserburgh, Scotland. The punk attitude is genuine, but so is their boardroom chops. James shared some great war stories from their early during a beer dinner I attended and happened to record most of.

The share offering comes with a serious bit of legalease to read but nobody is stopping you from skimming it all and sending your pounds off to James and Martin. Depending on your view of the investment the fine print might be worth a closer look, though I doubt that many day trader types are keeping watch on this. I suspect most people are like Sjoerd De Haan, a Dutch whiskey blogger and beer fan I spoke with. He bought in because he was moved by the project. Here is what he said when I asked him why he participated in Equity for Punks:

“I love their beers, and although not all of their brews appeal to me, I like the way they give the big breweries a good ass kicking every now and then. Their marketing appeals to me and since it goes accompanied by some terrific brews, I love the company.

The Equity for Punks shares come with quite some benefits, which I doubt I will use often. I got 4 shares mostly because I like to be part of something cool. I feel almost like it is charity to help them get enough cash to get their new eco brewery running.”

Thinking with his heart. I like this guy! Go read his blog.

Let’s talk about those benefits Sjored mentioned. They are most easily summarized in list form and a list was conveniently sent to me in an email from James Watt. I will copy and paste it here for you now:

·   Benefit financially from our future growth through dividends and also an increase in the value of your shareholding.
·   Lifetime discount in all of our BrewDog Bars
·   Lifetime discount on our online shop
·   Exclusive first options on all our special and limited edition beers
·   Invites to our (soon to be legendary) AGMs
·   Being able to participate in our annual by shareholders, for shareholders beer.
·   Having your say in how the company is run
·   Owning your very own part of BrewDog
·   Sell and trade your shares on or at a potential later listing
·   A welcome pack with some killer, shareholder only BrewDog merchandise including your awesome shareholder ID card.
·   Literally become richer with every BrewDog beer you drink

That is pretty sweet. Assume the worst: even if BrewDog went bankrupt you’d get some exclusive merchandise out of it! The discount on beer orders and in their pubs will tide you over until the dividend kicks in.

Click ahead and we'll break down the offer some more. There's even a sweet video!

The form of the offer is interesting in and of itself.

BrewDog claims to be the first in Europe to issues shares online. Investment industry expert and multiple-time Father of the Year award winner Jeff Brown confirms that the independent online offering is indeed uncommon: “It is very unusual for someone to issue shares over the web. I have never heard of it.”. The main advantages are cost savings achieved in cutting out brokers. Typically, 5-6% of the share price would be pocketed by the brokers, in exchange for flogging the shares to clients. Brown warns that though they save money this way the price may be affected in the future should the company go public. Brokers will be less familiar with the company and might be less apt to recommend it.

There are some interesting aspects of the deal squirreled away in that prospectus. One is that you get a larger discount  in the store the more shares you own (p.48). Another is the link BrewDog has to Anchor Brewing (mentioned several times in the prospectus) via a small stake in Anchor Brewers. Tony Folgio and Keith Greggor (owners of the company that owns Anchor) own a piece of BrewDog (see p. 55), distribute it in the US and sit on the board.  The two were involved with Skyy Vodka and other alcohol brands. Seems like the kind of guys you’d want selling your beer in America.

The most interesting part to me is the implied valuation. BrewDog is selling “approximately” 8% of the company for just over £2 Million. This means the implied worth of the company is about £25 Million.

If you are in it for the money as well as the beer, you need to ask yourself if the company is really worth £25 Million, or more simply, why each share is worth £23.75. You can check out the earnings and other financial info on pages 40-45.

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