Remember how I wrote about the Camden Town crowdfunding scheme a while back? They were looking to raise £1.5 million for 2% of the business. Well the campaign finished on the 21st of April, so there won’t be any more discussion on fundraising and investment in the brewing industry for a little while.
Aaaaaaaaand that’s enough of a little while here’s a bigger brewery with a bigger money spinning scheme. It’s Equity For Punks IV!
BrewDog launched the fourth round of their investment scheme THE BLOODY DAY AFTER Camden’s investment period finished. The very next day. That’s probably just a coincidence though, probably. Probably.
Anyway, seeing as I did it for Camden, I’m going to do it for the brewery the Portman Group loves to hate. We’ll look at how the share being sold fits into BrewDog’s ownership structure, what you get for your money and what they’re going to do with all that cash.
First though, the financial bit. Sure, it’s a little simple but I’m not a financial adviser and it took me four hours to read through the fine print of the whopping great prospectus so give me some credit. Here’s what you should know if you are considering investing in BrewDog.
BrewDog – A Value Comparison
BrewDog are offering 526,316 new B shares, which represents 8.19% of the company, for £25million.
So in that slightly simplified Dragon’s Den way, BrewDog are saying they are worth a bloody great big £305million.
THREE HUNDRED AND FIVE MILLION QUID.
To put that into perspective, Stone Brewing Company of California, Americas ninth largest craft brewery by sales volume and the #1 “All Time Top Brewery on Planet Earth” according to readers of Beer Advocate magazine, is worth $400-450million, or between £250-£290million.
Let’s call it £300 million, because at this point a couple of million doesn’t really matter, does it? We’ve lost all connection to real, actual tangible cash and some people are pretty much just making it up as they go along, as we’ll see in a minute.
That’s a bold statement by BrewDog. They’ll like being seen alongside Stone. But are they really comparable to Stone? Like, in the real world?
Stone Brewing Company had a brewing capacity of 287,075 bbl in 2014. That’s 336,876 hectolitres.
BrewDog’s capacity was 100,000 hectolitres – 29.7% the size of Stone.
Let’s assume that by this time next year, Stone will increase their capacity to, oh I don’t know, 400,000 hectolitres. Perfectly reasonable considering their previous yearly growth. 400,000 hectolitres would be pretty modest growth really, but we’ll stick with that figure for now.
That would make Stone a full four times larger than BrewDog in terms of capacity.
BrewDog want your money so that they can expand their brewing capacity. Fourfold in fact. To 400,000 hectolitres.
BrewDog consider themselves, at the present moment, nearly exactly as valuable as a brewery nearly exactly four times larger than them.
BrewDog consider themselves, at the present moment, nearly exactly as valuable as a brewery that is the same size as they will be after they’ve taken and used your money.
BrewDog are saying they are as valuable as a brewery four times larger. And they will use the money gained from that valuation and subsequent sale to grow four times larger to an actual comparable size.
Stone are worth about £300million now. BrewDog are saying that one day they will be too, so you should buy into the company as if it was worth that much now, now. That’s mental.
That’s like someone selling you a Ford Cortina for a million quid because one day it will be vintage and rare. But it’s not worth a million quid now so shove it mate and don’t try flogging it to me for half a billion if and when it is worth that million quid.
To paraphrase what I said in the Camden article: Do BrewDog really see things this way? Do they think they are as valuable as a brewery with 400% higher capacity?
Anyway, with the comparison out of the way, let’s move on to the bang for your buck.
How Much of BrewDog Will You Actually Own?
According to the investment prospectus, BrewDog’s ownership is broken down thus:
(As an aside, it may be that the “Unknown” are those reserved for employees as stock options. This is detailed on page 10 of the Offer of Subscription. These options, if taken fully, would detract £2.4million from BrewDog’s share price-based “value” set out above.)
The blue sections are shares owned by the company directors. The bits that concerns potential investors are the orange and red sections.
If EFPIV is fully subscribed, Equity Punks will own a grand total of 21% of BrewDog.
See that little red bit at the bottom? That’s your £25 million.
BrewDog is broken into 6,423,291 shares. That makes one share 0.000015568% of the company.
If you invest the minimum £95, your two shares equal 0.000031% of BrewDog.
The bang you get for your buck?
0.000000326% for every pound you spend.
Remember what I said about Camden’s offer?
Every pound you spend only gets you 0.00000133333%. And if you never listened in maths class, let me remind you: that is essentially zero.
For those who didn’t listen in maths and also don’t know how numbers work: 0.000000326 is smaller than 0.00000133. Nearly exactly four times smaller actually. And I’m pretty sure, from what I did listen to in maths, that four times less than essentially zero is definitely absolute zero.
Investing in BrewDog doesn’t seem like a great deal really, does it?
What Do I Get Out Of It?
You get a discount at BrewDog bars and on the online shop. Assume you only invest the minimum £95. That’s a whopping great 5% Bar discount and a mind boggling 10% online. (It doesn’t seem like much, but if you invest the minimum £95, you could very quickly recoup your investment in discount savings, as we’ll see in just a second.)
Each holder of at least two (2) B Shares will have the right to:
(a) an Equity Punk membership card issued by the Company allowing the holder to take advantage of exclusive offers, Beatnik beers and BrewDog special event;
(b) a £10 ‘beer bucks’ voucher which can redeemed at any BrewDog bar (where the shareholder has subscribed pursuant to the public offer made by the Company on 21 April 2015);
(c) a free ‘birthday beer’ (including any standard measure of any of the Company’s draft beers) in any BrewDog bar on the birthday of the holder; At the date of this document, the rights set out at 4.4.4 through 4.4.6 below are not enshrined in the Articles. The inclusion of these rights in the Articles will be put to shareholders at the AGM and is subject to their approval. 33
(d) an invitation to the Brew Day shareholder annual event;
(e) exclusive first access to limited release and special edition beers brewed by the Company;
(f) an invitation to all new BrewDog bar launches;
(g) membership of the Beatnik Brewing Collective, where shareholders have the opportunity to vote on what beers the Company brews and create Beatnik beers for sale only to shareholders;
(h) access to the members only section of the website (the Equity for Punks community);
(i) access to the bonus referral benefits when you refer friends who subscribe for B Shares in the Company.
So you get a nifty discount, a BrewDog version of a Boots Advantage card, a tenner that can be used in a BrewDog bar, a free beer on your birthday, an invitation to a thing you probably cant go to or get to, first dibs on new booze, invites to other places that are just lures for you to spend your free tenner plus more, an opportunity to have your voice heard (among nearly 20,000 other voices), access to an online forum (because there aren’t enough of those) and extra bits if you pester your mates to join in with all this fun.
If you offered Duncan Bannatyne 5% off the thing he just helped make, a load of spam for events he can’t go to and a membership card, the entire episode of Dragons Den would be bleeped out and just have Evan Davis wincing as the expletives get more and more extreme.
How Would Investing in BrewDog Pay Off?
Well, there won’t be any dividends for the foreseeable future, as all profits will be reinvested to encourage further growth. There’s also this from page 4 of the Offer of Subscription:
BrewDog is an unlisted company. There are also no plans to seek a public quotation on any recognised investment exchange or other market for the New B Shares.
Fat chance of making a profit by selling them on later then.
You’ll have to make you money back in other ways, such as in savings using your discount. Hardly a “profit” in the traditional actual investment sense mind.
Let’s say you use your online and bar discounts equally, giving an average of 7.5%. To make your money back, you’d have to spend £1267. You may well make your money back over a couple of years, but only if you plow money in. To make a return on your investment, you have to be a loyal consumer of your product. And pay for it. That’s not what an investment is.
This is not that. At no point will anybody achieve a profit. The company will, but that will be plowed back into the company in a vicious, punky beer-hemoth growing circle of no profit for the investors.
Well, one issue it raises is the question “Is it fair to call a membership fee an investment?” Let’s face it, that’s what this is. Investing in BrewDog is just a £95 (minimum) membership to an exclusive club that has some bonuses. But the main bonus is kind of designed to make sure you come back in the door to spend more cash.
So is it fair to disguise it as an “investment”? I don’t think it is. People buying shares in something see themselves as investors. They want their money to make them money. Persuading them that saving money on a shit load of beer is “making” money seems a bit dishonest to me.
Sure you can tell them that they “own” a bit of the company, but that means nothing. It’s a badge of honour that I discussed in the Camden article. It’s a valueless scrap of paper (or in this case, a plastic card and a membership number – very punk). Why bother?
You’ll notice that I haven’t talked much about what they’re going to do with your money. Aside from expanding the brewery (to the level actually consistent with the valuation of these shares) BrewDog have some exciting plans. These include investment in environmental technologies, starting a sour beer program and opening a craft distillery. That’s pretty darn awesome.
But why couldn’t this be funded by profit from the existing business? Why not wait a few years and see sustainable growth get you there? Probably because it’s easier to shake your loyal customers down for their cash if you sweeten the deal just enough.
From BrewDog’s perspective, they’ll get money they’d have to wait 5 years for and spend a lot of effort working towards without giving up much. The directors retain control by a long way and they don’t get any bonuses or dividends. They’re losing nothing. And gaining £25million. Fair play.
For a buyer, it’s not so great. To make your money back, you have to spend way more money. You get some nice things and get to join a club, but that’s about it. If you’ve got £95 spare and fancy joining a club of like minded people, go for it. Just bear in mind that it’s not really an “investment”.
The hyperbolic “reinventing business finance” bandied about by BrewDog and its partners is true to an extent – the new way of raising funds is to persuade your customers that it’s a good idea just to give it to you. Kind of like Scientology. It’s not just BrewDog doing it by any means. They’re just doing it better than anyone else. Apart from Scientology.
One final note. I’m no expert on finance, and I don’t know the exact circumstances around this image, but I do know what it looks like.
Is it wise to tweet a picture of your shiny new helicopter the day before asking your customers for twenty five million quid?
“We’ve made loads of money, but now we need more. For important stuff. Ignore that helicopter.”
I’m sorry. I’m out.