James Yoakum is an attorney at Kleinbard, LLC in Philadelphia who focuses his legal practice on commercial real estate matters as well as counseling clients in the beer, wine and spirits industries. Prior to becoming an attorney, James was the founder and chief distiller of Cooper River Distillers in Camden, New Jersey.
In some corners of the craft beer world, the moniker “sell out” remains a label to be avoided at all costs. The word craft itself implies a certain stubborn independence, so when smaller independent breweries are sold to larger brewers or to the dreaded “private equity concern,” there is almost always a chorus of doom.
However, you shouldn’t let social media or the industry’s talking heads deter you from considering the sale of your brewery business if and when the time is right – as long as you make sure you are taking the appropriate steps to prevent the transaction from going sour.
Before you start down the road of selling your brewery, there are two very important questions that you, along with any co-owners or partners, should carefully think through: First, ask yourself why you’re thinking of selling your business. Second, ask yourself what exactly you’re selling.
Why are you selling?
Your answer may range from “I’m too old for this and need to retire” to “I got an offer that seems too good to refuse” or “this business isn’t working and I don’t have the time, energy, skill or money to handle it.” Even if one or a combination of those short answers sums up your situation, it’s important to spend time digging into how you got to that point and what it means for the value of your business and the best approach to selling it.
For example, if the why you’re selling is that you’re tired of running the day-to-day operations, you will need to find a different type of buyer (one who can take over operating a brewery) than if you’re simply in need of more funds to grow to the next level, but able to stay on board as the day-to-day operator.
Next, what are you selling?
The first part of this exercise is to try to understand what a buyer will value if they buy your business. The question of value varies from brewery-to-brewery, based on numerous factors. For instance, for larger, well-established breweries, value may stem from a combination of the repeatable cash-flow generated by the brewery’s sales and the opportunity to capitalize on well-recognized brands that can be pushed out to new markets. For smaller breweries, especially those that aren’t consistently cash-flow-positive, hard assets such as brewing equipment, real estate, and inventory of ready-to-sell beer and raw materials may make up a larger share of the business’s value.
Depending on a brewery’s size, profitability and location, potential buyers may also see value in excess brewing capacity or “bolt on” brands or locations that can be easily attached to a larger portfolio of breweries. And of course, there’s always some amount of goodwill value attributable to the reputation and customer loyalty you’ve established in the marketplace.
Another aspect of this question requires you to think about your business model and the type of buyers it will appeal to. If your business relies mainly on on-site sales, that’s closer to a bar/restaurant operating model that will likely attract local, small-business entrepreneurs who want to operate consumer-facing, storefront businesses. Alternatively, if your operation is a more production-focused brewery that sells mostly through wholesale distribution channels, serious buyers are more likely to be other breweries looking to expand capacity or add brands — or even non-brewers from the more industrial or wholesale corners of the food and beverage world.
Of course, none of these generalizations are hard-and-fast rules, and you should always be open to a wide range of potential buyers. However, understanding what your brewery is and what it isn’t in business terms will give you focus and a realistic understanding of what your business will be worth to a buyer.
The final piece of the “What are you selling?” question is whether you are staying with the business. If you are the founder and chief toilet scrubber at your brewery, your daily presence is indispensable to the ongoing operation and value of the business, and most potential buyers will want to know that you’re sticking around. In that scenario you should be certain the terms on which you’re staying on-board are workable for your long-term happiness. Alternatively, if you aren’t sticking around, your brewery needs to be able to function without you, and you’ll need to focus on buyers who have a plan for replacing you.
Now what?
Once you know why you’re interested in selling and have some idea of what you’re selling, it’s time to get serious about pushing the sale process forward. Step one is hiring good advisors. You may be great at brewing and selling beer, but tackling the sale of a business is a unique process that requires a range of expertise. Plus, bringing in smart, experienced advisors early on can give them the most runway to present creative ideas and shape your business into something as attractive as possible to potential buyers.
The typical advisory team will include:
- Your accountant: They will need to carefully prepare your books prior to a sale and provide tax advice along the way. If you haven’t had a competent CPA before, hire one as soon as you start thinking of selling to make sure your finances are in order and presented in a format that is easily understood by potential buyers. For larger breweries with complex finances, hiring a contract CFO to optimize your operations financially before you start the sale process can be a very good investment over-and-above working with a good accountant.
- Investment banker or business broker: This role is essential if you’re truly “marketing” your business and trying to find the best possible buyer in the marketplace. Talk to several and try to find one whose experience and network is aligned with the type of business you’re selling. For example, a locally focused business broker who deals with bar and restaurant business sales may be a good fit for a brewery built around a local taproom, but they likely wouldn’t have the expertise to market a production brewery with national reach.
- Attorney: It’s also essential to hire a competent law firm that can provide legal advice in a range of areas, such as structuring your brewery sale, dealing with federal, state and local regulatory issues, and handling tax and employment matters. Don’t hesitate to shop around to find a law firm that brings expertise and creative thinking to the table.
- Communications team: Once you’re on the road to “selling out,” it’s time to manage the public relations aspect of selling. If possible, it may be helpful to consult with a public relations or marketing advisor to help control the public message around a sale to both maximize the value of the business you’re selling (i.e., make more money) and retain whatever image in the industry you want for yourself.
I started this article with some pithy remarks about the plight of the poor sellouts who lose their craft beer “street cred” the second they cash a check from selling their brewery. Hopefully my unserious tone on this topic makes clear that I don’t want you to give too much weight to the stigma around selling. If done thoughtfully and at the right time, selling out could be a positive next step for yourself and your brewery.
And hey! You just sold your company, so beers are on you!