Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is the author of ‘The Truth About Investing’
Dogs supposedly resemble their owners. BrewDog certainly resembled co-owner James Watt during their glory days. Both were ambitious, iconoclastic and abrasive. Now the UK’s largest independent brewer — no longer chaired by Watt — is up for sale.
The business, which proudly boasted that it made “beer for punks”, recently appointed a New York-based management consultancy to lead a restructuring. Any proceeds would likely be much less than a peak valuation of £2bn. Most of the money — possibly all of it — would go to a California private equity firm.
BrewDog’s insurrection against “boring beer” and corporate conformity has failed. Beers like Punk IPA may end up as just another bunch of legacy brands within the portfolio of a big drinks business.
This is not what an army of small investors — so-called “equity punks” — had hoped for. More than 200,000 people bought shares in the private business. Some of them are now very angry. A typical post on Facebook is: “Not so disruptive after all, then. Milk the man in the street for whatever you can, protect your big investors.”
I first encountered Watt in the late noughties at an enterprise awards ceremony. He came across as a motormouth with a passionate desire to shake up the bland beer business. At the time, he was still skippering a trawler to finance his enterprise. The judging panel was impressed, but reckoned the Aberdeenshire business faced an uphill battle against big brewers.
When BrewDog only won second prize, Watt denounced the judges from the stage, waving a bottle of his own beer.
Shock tactics helped BrewDog grab attention. Watt shot from the lip with criticisms of big brewers. In one PR stunt, the company marketed bottles of high-alcohol ale priced at £500 apiece crudely stuffed inside taxidermised animals. The business cultivated a provocative image far removed from that of the folksy, rural craft brewer.
This appealed to young, predominantly male drinkers. In 2016, BrewDog raised revenues 61 per cent to £72mn, shipped the equivalent of 65mn bottles of beer worldwide and rejoiced in the title of the UK’s number one craft ale producer.
BrewDog began chalking up substantial losses in 2020, during Covid. In 2021, the company’s public image was badly damaged by allegations of workplace sexism and a “culture of fear” by campaigners Punks with Purpose.
But if you want to stick a pin in the timeline to mark “beginning of the end,” it would be back in 2017. That was when Watt did a deal that made him look like a sellout of a particularly clumsy kind to equity punks. He and a co-founder raised £213mn by selling almost a quarter of BrewDog to TSG Consumer Partners of the US, valuing the company at almost £900mn.
The astonishing rider was that the private equity group was entitled to a guaranteed 18 per cent compound return a year on its investment. TSG would therefore take precedence over other shareholders, co-founders and equity punks included, in claiming proceeds from any flotation or trade sale.
How could the co-founders have agreed to this? Were they blinded by flashing dollar signs? Did they believe, like some “equity punks”, that BrewDog was headed for a monumental initial public offering? Or had they simply forgotten how a compounding liability snowballs?
By April of this year, I calculate that TSG’s claim on the proceeds of any sale may have a theoretical value of almost £950mn. That is more than a valuation put on the entire business by FT Alphaville last July. The company has chalked up cumulative net losses of over £130mn in a decade, according to filings, even though revenues climbed to £357mn in 2024.
The taming of BrewDog is partly the result of the “external factors” most bosses like to blame when things go wrong. These include a long, slow decline in the popularity of beer accompanied by a precipitous slump — 25 per cent — in the number of UK pubs since 2001.
I believe BrewDog has had a bigger difficulty. This prevents many start-ups from growing into large, stable companies. The enterprise thrives initially, thanks to its key founder’s bulletproof self-belief and ambition. Those qualities become flaws when amplified by managerial power and big money. In BrewDog’s case the results appear to have been a toxic culture — for which Watt subsequently apologised — and a lossmaking expansion.
That is a kinder assessment of BrewDog than some equity punks are currently delivering. They have been quick to apply the title of Sex Pistols’ movie The Great Rock ‘n’ Roll Swindle to their shares. And they answer “yes” to Jonny Rotten’s sneering question to fans: “Ever get the feeling you’ve been cheated?”