If you want to position your brewery for acquisition, having a popular beer is where it all starts. But in the end, there's a lot more to strategic selling. Brewery operators on the hunt for a buyer also must establish healthy growth and brand equity, ensure their financials are in order, and remain alert to competitive conflicts from distribution.
Here are some best practices to position your brewery for a sale.
As of 2016, there are approximately 5,000 breweries in the U.S., according to the Brewers Association,1 and 99% of them are still small and independent.
As might be expected after a time of big growth and increased consolidation, craft beer sales overall—while still rising—have slowed in the U.S. over the past four years, also per the Brewers Association.
1. START EARLY
Selling to a global conglomerate is a long process. So the sooner you begin to position yourself as a sales target, the better, advises Scott Vanderpool, a Bank of America Merrill Lynch market executive in Business Banking.
"You need to start preparing yourself and making business decisions with a future sale in mind 24 to 36 months in advance," he says.
The fundamental question to answer, however, is what a brewery hopes to gain from being acquired. "Figuring out why you want to sell will drive everything after that," explains Vanderpool. "For example, if you're looking for an acquiring company to take a full equity stake in your business, that will lead to a different series of business decisions than if you're expecting them to only buy your company’s name and distribution rights."
2. THINK LIKE A BUYER
Take an unflinching inventory of your brewery and be honest with yourself about any problems that may put off a potential buyer.
The quality and brand value of your product are of the utmost importance. Independent breweries targeted by major conglomerates typically feature innovative blends that are loved by a growing regional customer base.
• How do your flavors stand out?
• How loyal are your customers?
• How much sales growth have you seen over the past year or two or three?
It may also be worth seeking out strategic partnerships with larger companies that have already made acquisitions in your market. Establishing a partnership with a big brand can make it that much easier to explore a deeper relationship—including an acquisition—later on.
3. GET YOUR FINANCIAL HOUSE IN ORDER
Many a potential business sale has fallen apart once a suitor looks under the hood of the targeted company. To prevent a sale from going bust, it’s in your best interest to conduct a thorough due diligence before a potential acquirer does.
Consider pre-emptively bringing in a financial advisor to scour your brewery’s books. Along with examining key fundamentals such as sales revenue, production and distribution costs, employee salaries, and profit margins, an advisor can alert you to any red flags by digging deeper into aspects of your business’s financial health. These can include:
• Detailed audits of the company’s federal, state, and foreign tax returns
• Any liens, encumbrances, or mortgages on personal or company property
• Business plans and financial projections
• Internal financial controls
• The status of any patents, trademarks, or licenses
4. DON’T OVERLOOK DISTRIBUTION RIGHTS ISSUES
While many basic business principles of getting your business acquired can apply to the craft beer industry, there are some aspects of the industry that are unique. Distribution is one area of the craft brewery industry that can be quite complicated, and it is subject to regulations according to state. Sometimes a craft brewery looking to be acquired may share distribution with a rival brand of the potential buyer, which can create an unwanted headache for the buyer. In fact, distribution issues are one key reason why there aren’t more acquisitions within the craft brewery segment. This is why it’s crucial to look for these potential distribution conflicts before they become a problem during the sales process.
1 Brewers Association. "2016 Craft Beer Year in Review from the Brewers Association." https://www.brewersassociation.org/press-releases/2016-craft-beer-year-review-brewers-association/
- If you are a brewery operator looking to sell your business, start planning 24 to 36 months in advance.
- Think like a buyer and hone in on what makes your business stand out from the competition.
- Consider seeking out strategic partnerships.
- Think about hiring a financial advisor to help get your brewery’s books in order.
- Don’t forget to consider distribution rights issues.