BrewDog mulls GBP 10 million bond offering

United Kingdom | That is clever. Deviating from its preferred route to finance through crowdfunding, the Scottish brewer and pub operator may issue a GBP 10 million (USD 12 million) bond that would repay lenders partly in beer.

BrewDog founder James Watt has floated the idea on the firm’s investor website on 15 August 2019. “We are considering another GBP 10 million bond offering and this time we would pay the coupon 50 percent in beer and 50 percent in cash,” Mr Watt wrote. “Meaning investors get an annual financial return and also an annual payment in beer!”

Take it for granted that BrewDog needs money to pursue its ambitious global expansion scheme. It cannot have budgeted for the purchase of Stone Berlin. The opportunity arose unexpectedly in April this year.

Whether Stone has been paid yet in full, is open to speculation. BrewDog has already invested significant sums in the Berlin brewery and taproom, even though it missed out on the lucrative summer business. TapDogBerlin only re-opened in mid-August.

At this stage, BrewDog has no concrete plans for the bond offering. It is testing the idea and has asked investors for their feedback.

The beauty of an interest-bearing bond offering is that it could make investors part with their money more readily and quickly than a crowdfunding initiative.

BrewDog has previously launched two “mini-bonds”, targeted at retail investors (that is individuals who purchase securities for their own personal account as opposed to institutional investors, like mutual funds, pensions, or university endowments).

In 2016, BrewDog successfully sold GBP 2.5 million in 4-year bonds that carried a 6.5 percent interest rate. Last year it raised GBP 10 million by issuing a 4-year bond with a 7.5 percent interest rate. In comparison, BrewDog has raised over USD 85 million through crowdfunding to date.

Some have questioned why the company sees a need to repay lenders in beer, or any product, rather than cash, as is convention. Both of its previous bonds entitled investors to a 10 percent discount in BrewDog’s bars but did not include beer as a payment component.

The answer to this puzzle is: If lenders are paid partly in beer, some of the interest rate is slyly withheld by BrewDog, namely the margin it makes on selling beer in its bars. At the same time, by redeeming their coupons, lenders will hike BrewDog’s turnover and beer sales. Really, BrewDog’s cunning isn’t hard to figure out.  

Of course, BrewDog could have asked its private equity partner TSG for a cash injection. In 2017, BrewDog sold a 22 percent stake to US private equity firm TSG Consumer Partners, for approximately USD 265 million, which valued BrewDog at about USD 1.2 billion. However, private equity is generally more interested in extracting high profits from businesses than in putting heaps of money behind them. If other lenders are willing to step in with their cash, that is fine by them.    

Founded in 2007, BrewDog had a turnover of GBP 171 million (USD 207 million) in 2018. It made an operating profit of GBP 832,000 (USD 1 million) but a pre-tax loss of GBP 576,000. It has breweries in Ellon (Scotland), Ohio (USA), Brisbane (Australia) and Berlin (Germany). The firm has more than 90 bars globally and owns a beer-themed hotel.