A Crafty move?
Recently, several craft beer companies have received major investments. How has it improved their valuation?
Scottish brewer Innis & Gunn has just agreed to a £15m growth capital investment from private equity firm L Catterton. The investment earned the US group a 27.9% stake, giving the craft beer maker an equity valuation around £54m and an enterprise value approaching £60m.
The craft beer industry has been frothy in recent years. Funds have flowed into Meantime and Camden brewers. and most notably BrewDog, which leads the pack following its heady £213m April 2017 investment to fund ‘global expansion’.
And update in 2019: now that even Carlsberg (see our posting on Carlsberg’s high risk marketing strategy here) has realised that the market for boring beer is under threat, and that they should get in the game – perhaps valuations will go even higher?
So does this investment end up in the hands of the founders and early shareholders? An element undoubtedly will – but the majority will find its way into the capital expenditure column of those businesses as they improve processes, build new facilities and try to enter new markets. After all, the investment is intended for growth purposes, and in the long term, you have to reinvest to grow.
For any business, it is essential that growth projections are realistic and plausible. Unless you have discovered a magic money tree, your assumptions of future growth should be inextricably and proportionately linked to reinvestment (CapEx) levels. In turn, the success of your business will be determined by the returns you earn from this reinvestment (your return on capital).
With the Pomanda valuation tool, we give business owners the ability to model their own assumptions and determine how changes to key inputs such as growth, margins, CapEx and cost of capital can impact the potential valuation of their company. Try running your business through our valuation tool for free today.
One final thought: given the explosive growth enjoyed by up and coming beer makers, at what point does the term ‘craft brewer’ become a misnomer?