02 May 2024

A private equity roll-up bets on the future of UK craft beer

United Kingdom | Currently the market for craft beer is very tough and brewery failures are rising. But the private equity group Breal seems to believe that things will improve eventually and craft beer sales will rise again. Over the course of the past year, Breal has acquired four craft breweries on the cusp of going bust. Breal believes it can turn them around while adding more breweries to its portfolio in order to improve economies of scale.

In quick succession, Breal has rolled up breweries, including Black Sheep (May 2023) from Masham, Yorkshire, followed by London’s Brick (June 2023) and Brew By Numbers (August 2023), and most recently, in January, Purity from Great Alne, a village south of Birmingham. All four were in dire straits financially.

A shadow of their former selves

The three smaller ones – Brew by Numbers, Brick and Purity – were bought out of administration. However, the legacy craft brewery Black Sheep (founded in 1992) was sold in a “pre-packed administration deal”. One shareholder called the deal “daylight robbery”. Because when Black Sheep was taken private by Breal, more than 1,200 shareholders in the old company, plus creditors, plus various other companies and the government (i.e. taxpayers) were left high and dry: They are owed between GBP 4 million and GBP 5 million (USD 6.4 million).

In the days before the pandemic, Black Sheep sold an estimated 70 000 hl beer annually. Purity was a smaller outfit, and the London brewery Brick, observers say, may have been a 10 000 hl brand. Brew By Numbers reportedly sold 5 000 hl beer in 2018. That was in the old days. When acquired by Breal, Black Sheep fetched GBP 5 million, Purity GBP 2 million, and Brick GBP 318 000 (USD 402 000), according to reports. Figures for Brew By Numbers were not disclosed.

The PE treatment

Probably in an effort to stem losses, the two London breweries have since been closed, with staff being laid off and brew kits moved to Black Sheep’s site. Three of Black Sheep’s four pubs were also shuttered and several key people have left. The Evening Standard newspaper summed up Breal’s strategy as: “snap [them] up on the cheap, sack the staff, close the brewery and keep the label alive by using another brewery up north.”

To cope with the new volume, Black Sheep’s capacity will be increased with the help of a GBP 1 million capital injection. But will consumers take to the re-location of the London breweries kindly? “Who will drink Brick beer if it is not made in South London?” many observers wonder.

Why choose Keystone as company name?

In a rather bizarre move, at the end of February, Breal was renamed Keystone Brewing Group. Obviously, the keystone is an architectural element which supports an arch. In similar fashion, “Keystone Brewing Group is dedicated to supporting and nurturing both established and emerging brands within its portfolio,” the group’s new CEO, Mark Williams, was quoted as saying.

But why on earth choose Keystone? The brand name is widely used, but the best-known Keystone brand within the beer space is a budget brand owned by Molson Coors in the US, and notorious for its copyright infringement spat with San Diego’s craft brewer Stone. In 2022, after a lengthy court battle, Molson Coors was ordered to pay Stone USD 56 million in damages.

The CEO’s background: unknown

Perhaps the US scandal had escaped Breal and its Keystone CEO, about whom nothing is known in the industry, except that he is 57 years old and the sole officer on Keystone’s board of directors. Keystone’s new CFO, the former Managing Director of Purity, John Hunt, is not a member (per its official registration in Companies House). It was equally deemed very strange that on a recent meet and greet with the press, Mr Williams, on 23 March, refused to have his photo taken by the Yorkshire Post, a newspaper.

Breal’s founders are colourful figures. According to the Evening Standard, Brent Osborne and Alan McLaren were two Landsbanki directors - the Icelandic bank which spectacularly collapsed during the Financial Crisis 2008/2009, although the two were innocent parties and not responsible for Landsbanki’s problems. After the recession, the two got together and assembled their own private equity business called Breal in 2013. In the past, Breal has reportedly worked with the steel and aviation sectors. Incidentally, Mr Osborne has written and self-published an “adult novel”, called The Fascination, under the pen name Bob Renterson. It invites readers to “enter the seedy and erotically charged world of money, power, greed and addiction” and has a plotline where “bankers are finally getting what’s been coming to them,” the website thedrinksbusiness.com said.

On the lookout for more struggling breweries

Several industry insiders think that Breal and Keystone may understand spreadsheets but not the brewing industry. Mr Williams let it be known that he plans to roll up more craft breweries as he quadruples Keystone’s revenues to GBP 100 million by 2028.

He also told the beer writer Roger Protz that it is part of the Breal Group’s philosophy to eventually sell off some if its acquisitions when they are working successfully. This suggests some breweries rescued by Keystone could be hived off after a few years. The big question remains, though: Who will he sell them to?

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