By Ben Waters
Further to yesterday’s announcement that C&C Group, the drinks giant who own Magners, has acquired a minority stake in the Cornwall-based craft beer start-up Jubel, I thought it was a good opportunity to look at the craft beer market more generally, and in particular acquisitions in the sector.
What is a ‘craft beer’? The dictionary definition states that it is ‘a beer made in a traditional or non-mechanised way by a small brewery’ and in addition to that I would say that craft brewers also tend to focus on high quality ingredients and even branch into bold flavours, some as far-fetched as pizza and chocolate flavoured beer…
I am interested in the sector not only as a consumer, but also professionally. PKF Francis Clark has a specialist Food and Drink sector team and craft beer brewers are well represented within our client base and in the region more generally.
Craft beer has seen an explosion in popularity in the UK over recent years with the number of breweries growing at a massive 17%pa from 2009 to 2016, no doubt encouraged by the 50% tax break on beer duties for breweries producing less than 5,000 hectolitres.
This growth has resulted in the UK having the highest number of breweries per capita in the world. Volumes of craft beer continue to grow and buyouts of these microbreweries by large multinationals are also becoming ever more common, and indeed are tipped to accelerate.
Australian food and drink manufacturer, Lion, has recently been in the headlines with the acquisition of breakthrough UK craft brewer Magic Rock from Huddersfield, Yorkshire, in March of this year. This is not Lion’s first move into the UK craft beer market, having acquired London-based Fourpure Brewing Co back in July 2018, and comments from their Global Markets MD appear to not rule out further acquisitions in the future.
The UK has seen a number of this kind of takeover activity in the last few years including, back in 2015, the acquisition of the popular Camden Town Brewery by AB InBev, the largest brewer in the world and owner of brands such as Budweiser and Stella Artois. Earlier that year SABMiller (owners of Peroni and Grolsch) completed their purchase of Meantime Brewing Company, another London craft brewer who had been capitalising on the market growth, increasing its sales by a staggering 58% in the year before acquisition. These deals became “related by marriage” when AB InBev acquired SABMiller for a massive £79bn to create a brewing giant accounting for nigh on half of the brewing industry’s profits, a move tipped in part to be aimed at combatting the craft threat.
Not all transactions have been major stake acquisitions, for example Dutch giant Heineken’s acquisition of minority stakes in London breweries Brixton and Beavertown in 2017 and 2018 respectively provided the latter with a much needed £40m cash injection to increase capacity and to create an expected additional 150 jobs.
The BrewDog impact
We have also seen transactions in the larger end of the craft beer spectrum, with craft brew pioneer BrewDog receiving a £213m investment from TSG Partners, comprising of a £113m acquisition of 22% of the shares and a £100m injection of funds, after valuing the company at £1bn. The deal, delivering some lofty returns to the investors it attracted through its innovative “Equity for Punks” scheme, and even loftier to its founders, who just 10 years prior began brewing in a parent’s garage.
I am sure the above is a factor in a number of craft beer brewers approaching the ‘crowd’ for equity investment through platforms such as Crowdcube, and also the receptiveness of the crowd to invest, where banks have perhaps not on the whole been receptive.
Happy hour may be over, but last orders is far from being called
The influx of competition from new entrants; market factors such as pub closures, the growing popularity of low/no alcohol beer and the development of craft style beers from the big players, are arguably combining to squeeze margins and leave the smaller craft beer producers at a crossroads with little spare self-generated capital for expansion.
Those at capacity can either seek to ‘grow’ or ‘hold’. Some brewers may take the option to continue as they are, earning a living doing what they love, or look for external investment (fund raise or takeover) to increase capacity and extend market reach to take the business to the next level.
The overall outlook can be viewed as positive; craft beer market is still outgrowing the total beer market, and the market share of craft beers in the UK is still below 5%, leaving substantial room for growth when compared to its 23% share of US sales, a market arguably further along a similar path.
“Success is where preparation and opportunity meet”
As mentioned above, PKF Francis Clark has a team that specialise in the Food and Drink sector, who work with other experts at the firm to help to successfully develop food and drink businesses. An example of issues currently being discussed and disseminated by that team are contained in the latest Food and Drink newsletter.
The articles in the spring edition cover a number of the areas covered in this blog including: Transactions (including sales to overseas buyer) and Funding. If you have any questions about how to take your craft brewing business forward please do not hesitate to contact one of our team firstname.lastname@example.org