Sunday, 9 April 2017

Sick as an Equity Punk Dog.


Brewdog, the Voldemort of the financial establishment, just sold out its equity punk army. Welcome to the real world boys.


Just to make a few points clear for readers - some of whom have tried to comment but have not been posted as we felt the comments were ill informed. This blog is about investing via an ECF platform. So most of the Brewdog investors are not relevant here. Brewdog has been a phenomenal success - to this point. Yes early stage investors (via BD's own campaigns) have seen great returns - although figures out there range from 2800% (Brewdog's own figure and 600%  - a comment here). Our estimate is that CC investors could see a 170% return or 1.7X but this is limited in scope as you cant sell more than 15% of your holding. The point of this post is that BD have always been v proud of being outside the mainstream - but here they are helping themselves to it. Their US ECF campaign has been a flop, their exponential rise in profits has slowed and they were in trouble - half finished US brewery needs cash. So they went the orhtodox, establishment, PE route. Given what they said about Camden we thought this was worth writing about. 

Brewdog have raised their own ECf and used Crowdcube to tune of many millions over the last 3 years. They harangued Camden Brewery for selling out to the massive ABV. 

Now with the failure of their US ECf campaign, they have crashed into reality. The new build, half finished, brewery in Ohio needs funding and money really doesnt grow on trees; even in Ohio. Not even if you are punks.

So the Brewdog has lain down and rolled over; selling 22% of the company for £100m to US PE firm TSG. The founders, Watts and Dickie, have also sold 10% and 8% respectively of their own holding to TSG, along with a few selected investors, for another £113m. Everyday Crowdcube investors would not have been invited. You are the real punks now.

We have been banging on about their poor performance in the US - the ECf campaign there is woeful. Well here is the result. Dilution bonanza. Will their US plans work out - my guess is no.  

13 comments:

  1. Yes. It's terrible, I'm so upset with my 6 times return in 3 years. I'm such a sell-out. Your blog is good but it would be better if you weren't always a narrative trying to find a story.

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    1. Is that your on paper 6 times return (lets wait to see what happens) or cash?

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    2. Agreed! So did you invest through CC or "Equity for Punks" to get 600%, or are you one of the "select few"? And are you restricted on your tag rights? Was this made clear at the start?

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  2. Rob - you are letting yourself down here. You have made a huge contribution to helping some of the more rational people understand what is really going on in the ECF space over years. However, you are talking rubbish on this one. You (rightly) endlessly point out the lack of returns, lack of professionalism, general fantasy-land approaches of many ECF campaigns/businesses. BrewDog tried an ECF campaign in the US (they could have got the money from number of sources) which was a bit of a flop for a variety of reasons. The story today shouldn't be ''shock horror - not everything this company has ever tried has worked''. You should instead celebrate that not every ECF'd company is going down the drain. To talk about 'dilution bonanza' when many ECF investors will be realizing returns and have equity in a company being taken so seriously is fatuous. Come on...

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  3. Kind words. Im happy with the post - it's just being misinterpreted. Brewdog as a company is not one i comment on much - simply because it was a great success before it used CC. It's in no way typical of the 99.9% of the other CC raises.It is not an ECF's company as you state - simply you have missed the point. It used its own platform for 95% of the funding so that's not the ECF we write about. Yes they have been very successful. As I state - only an idiot would deny the obvious. But the $100m equity punk raise in the US(now reduced to $50m for obvious reasons) has been a total flop. A total misread of their US following. Hence the sell out to a PE firm. If you had asked man with hat a year ago when he was going to sell 22% of his company to a massive US PE firm, he would taken your head off. That's the story we printed. You dont have to agree with it but please dont make it out to be something it isnt. Returns for CC investors look poor to middling- quoted at 1.7 times but unsure on the levels you are allowed to sell. Great returns for those who got in in 2013/14 on the EFP1/2 and 3 but that wasnt CC investors. We write about CC investors/companies. So sit down and read it again. Please.

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  4. Fair enough. My point is that in writing about yesterdays news, the 'total flop' and 'total misread of their US following' should be seen in the wider context of a company that has made many many good financing decisions and done well for many of their investors. Everyday companies make big and small decisions, some of which turn out well and some of which end up flopping. The entrepreneur that has enough cards in his hand to quickly pursue other routes and crack on in the face of a setback is one I admire!!

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  5. If I could upvote the Anonymous post at 7:52 on April 10, I would.

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  6. There's a missed point in all of this. The touted £1bn valuation is based on the price TSG have paid for the new C class shares. These C class shares have a guaranteed annual return of 18%, a guarantee which is effectively provided by the A and B class shareholders. Anybody with a basic understanding of option pricing will see that these C shares are far more valuable than the A/B shares now. The £1bn figure, and the % returns presented by Brewdog, are based on the assumption that all share classes are identical, which is false.

    It's great that they've offered to buy 15% of equity punks shares at this price (less if you have a large holding), probably because they will get converted into C shares once TSG get their hands on them. But don't be fooled into thinking your remaining B shares are worth what TSG have paid for their new C shares. You are now responsible for a guarantee that TSG receive an 18% compound annual return. If the growth rate comes in at a more modest rate your shareholding will gradually get wiped out to pay them off.

    The offer to buy 15% of your B shares at the C share price is a one time marketing trick to make equity punks feel like they've earned a high return and this is a great deal. And you have done well on your 15%, but you should be a bit more worried about your 85%!

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    1. You hit the nail on the head! Finally someone who understands what is really happening (other than the initiators). I will - for sure - sell 15% of my shares, so the pain at the end of the ride will be a bit less. If I could sell more or everything right now, I would.

      Only question that I have: The 18% compound annual return, will this be on the 113 million only and is the additional 100 million treated as share premium? Because if that is the case, the valuation picture would be quite a bit different....

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  7. Turns out you only get to sell 15% of your holding if you have almost NO holding. I get to sell 0.003% of mine!

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    1. Would you care to elaborate - there is an important issue of trust here and if SHs feel they have not been told the honest truth then we'd like to know. I believe the limit was 15% OR 40 shares. So you must have around 15000 of them??

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  8. I have about 11000. I am not going to criticise the boys as they have done a great job and have also provided liquidity via Asset Match. It's just a shame that the amount i can sell is so small. There have been share splits in the past so i genuinely didnt had no idea how many shares i have until i looked it up. Yesterday Brewdog sent an email stating that the purchase price would be £13.80 so I and others will get £550 for 40 shares. I would have loved to have been able to sell 15%.

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  9. Tks Jim - agree with you. Fantastic company that has made a bit of mess here.

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