Saturday, 15 April 2017

The real facts behind Brewdog's exiting punks

When something seems too good to be true - it usually is. Commentators on Brewdog's recent 2800% return for its punk shareholders have missed the main point.

We had this comment from a reader and shareholder in Brewdog - thank you - 

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%.

We can all agree that Brewdog has been a massive success. It's just, when hangers on like Crowdcube try to claim some of it, that is when the wheels fall off. 

Permanent Apologist for Crowdcube, JD Alois of Crowdfund Insider, has taken the bait, hook line and sinker. Hardly a surprise given the other articles this JD Alois has written on ECF. Naive would be our kindest thought - And no we didnt give him the quote he used in this article - he lifted it off the blog without permission in what is a total misrepresentation. 

So essentially all shareholders of any size ie over the 40 share limit of £550 are locked in until such time as the company goes public, is sold or they hold another sale on Asset Match. Not quite the deal as it has been painted. Not only are they tied in but they are now subject to the PE deal done with TSG for 22% of the company - ie C Pref shares that return 18% pa no matter what. 

So how can the company be claiming that it is giving its punks a return of 2800%? It isnt. That would only be true if the punks had some way to sell all the shares they bought in round one - but they are limited to 40. So it's mutton dressed as lamb, for a topical Easter analogy. Why didnt JD Alois pick up on this fact - well he may not be bright enough. The potential return for investors is 40 times £13.80 which is £552. Now if you invested £2000 in round 1, you have paper worth nothing in reality and £552 in cash. Of course this paper could be worth loads later but it isnt today as you cannot sell it....anywhere. 

So as Brewdog is such a success,.how come people are not queuing up for their shares - market or no market. Well maybe the current valuation has rather stripped out the up side for now? TSG only put in £230m because they were getting 18% on their C pref shares and one assumes some control over the management. You wont find that offer for your shares. Which, to come full circle, rather begs the question  - is this really a £1bn valuation? Only if you are Crowdcube and JD Alois.

Interestingly, TSG must have agreed to all of this before investing - the limit and the price per share. They wouldnt have invested so much if they knew Brewdog were then going to be cash poor by buying back too many shares. So someone apart from James the Cap is now wagging the dog's tail. 

If you ask the question why did Brewdog, a company so against the mainstream, indulge in selling to a massive US corporate PE firm, you get a little clearer picture of why the limit of 15% or 40 shares is in place. The US equity4punks campaign has been a flop and they needed cash NOW to complete the Ohio brewery. Raising cash to hand it back to SHs wasnt going to work, so they sweetened the anti punk corporate sell out, by giving investors a little sugar. 

The company is still a phenomenal success  - it's just it's not quite as punk as it thinks it is. 'God save the Queen and Corporate regime' might be their new motto.  

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