By - Jeremiah Grant
Last Updated - August 7th, 2024 2:45 AM
Aug 07
Did you know the U.S. has nearly 10,000 breweries, making over $30 billion a year? This shows the growing demand for craft drinks and the need to know how to value a brewery. Whether buying or selling, understanding brewery valuation is key in this competitive field. Similar valuation principles apply to other businesses like cafes and salons, emphasizing the importance of industry-specific expertise.
The brewery industry is changing fast. Knowing about economic trends, what customers like, and how well a brewery runs is crucial. With SDE and EBITDA multiples ranging from 3.24x to 4.74x, it’s important to understand these numbers. We’ll look into how to value a brewery and what makes it worth something in this booming market.
The brewery industry, particularly the craft beer segment, has experienced significant growth and transformation in recent years. In 2023, small and independent brewers in the US produced 23.4 million barrels of beer, marking a 1% decline from 2022, yet their market share by volume increased to 13.3%. The number of operational craft breweries rose to an all-time high of 9,683, including 2,071 microbreweries, 3,467 brewpubs, and 3,900 taproom breweries.
Globally, the beer market was valued at USD 821.39 billion in 2023 and is projected to reach USD 1,123.7 billion by 2032, driven by rising demand for premium beers and technological advancements. In the US, the brewery industry’s revenue is expected to grow at an annualized rate of 1.3% over the next five years.
Despite the overall market’s maturity, the craft beer sector shows resilience, with 54% of surveyed breweries reporting growth in the first half of 2024. Challenges persist, including increased competition from alternative beverages like ready-to-drink cocktails and changing consumer preferences.
Know Your Brewery’s True Worth Today!
Whether you’re planning to expand, attract investment, or sell, our expert brewery valuation services will provide you with the insights you need.
Knowing the worth of a brewery is key for both buyers and sellers in the craft beer market. There are many reasons to value a brewery, like making smart decisions. Sellers must set a fair price to avoid selling too low or too high, which can lead to bad sales outcomes.
For buyers, understanding a brewery’s value helps in negotiations. It lets you plan your finances better, making sure you can invest wisely. Evaluating a brewery also gives you insights into its efficiency, market position, and growth potential. This is equally true while valuing chiropractic practices, daycare businesses and many more.
The craft beer industry is always changing, so keeping brewery valuations high is crucial. This helps founders keep more equity and control over their businesses. Also, having a strong brand is key to attracting investors and boosting the brewery’s value. This means valuing breweries differently, depending on if they are new or established.
Aspect
Established Breweries
Startup Breweries
Valuation Basis
Current revenue and profits
Potential future value
Key Factors
Brand strength, growth metrics
Team strength and vision
Valuation Challenges
Higher regulatory scrutiny
Lower initial revenues
Funding Sources
Debt/Equity financing
Founders, grants
In a heavily regulated industry, understanding a brewery’s worth is crucial for both now and the future. Putting effort into a detailed valuation makes buying and selling smoother and can increase profits.
Key Factors Influencing Brewery Valuation
Understanding what affects brewery valuation is key in this changing industry. Economic conditions, what consumers like, and how well a brewery runs are all big factors. Each one affects how buyers and investors see a brewery’s value.
Economic Conditions
When the economy is strong, consumer spending on discretionary items like craft beer increases, boosting brewery revenues and, consequently, their value. During economic downturns, spending typically declines, negatively impacting brewery valuations. Breweries that can demonstrate resilience through consistent cash flow and robust financial management are more attractive to investors. For instance, a study highlighted that breweries with diversified product lines and strong local customer bases often fare better during economic downturns. Additionally, the craft beer market’s growth despite broader economic challenges illustrates that niche markets can offer stability and growth opportunities even when general economic conditions are less favorable.
Consumer Trends and Preferences
The increasing demand for unique, locally-produced craft beers has driven the success of many small breweries. This trend is underpinned by a shift in consumer preferences towards authenticity and diversity in flavor profiles. Breweries that innovate and adapt to these trends—such as producing popular styles like IPAs or sours—can capture more market share and increase their value. Moreover, effective marketing strategies that engage consumers and build brand loyalty are essential. Successful breweries often leverage social media and community events to enhance their brand presence, which can significantly impact their market valuation.
Operational Efficiency and Product Lines
Breweries that optimize production processes, reduce waste, and manage resources effectively tend to have better profit margins, enhancing their attractiveness to investors. Diversifying product lines also plays a significant role; offering a variety of beers can mitigate risks associated with changing consumer preferences and market trends. For example, a brewery that excels in producing high-quality IPAs, lagers, and seasonal brews can appeal to a broader customer base, ensuring steady revenue streams. Efficient operations and a diverse product portfolio not only improve financial performance but also strengthen the brewery’s competitive position in the market.
Methods to Value a Brewery
Understanding how to value a brewery requires diving into methods that help us calculate what a business is worth. Imagine you’re a child running a lemonade stand and you want to know how much your lemonade business is worth if you were to sell it. Similarly, breweries need to know their value for reasons like attracting investors, selling the business, or simply understanding their financial health. Let’s understand the methods.
1. Income Approach
The Income Approach is like predicting how much money you’ll make with your lemonade stand in the future and figuring out how much that future money is worth today. This method involves looking at the brewery’s ability to generate future income and converting those future earnings into present value.
Discounted Cash Flow (DCF) Method
The DCF method is particularly good for breweries because it focuses on predicting future cash flows, which means how much money the business will bring in over time. Let’s break it down step by step:
Forecasting Future Cash Flows: Imagine you have to guess how many lemonades you’ll sell each month for the next five years. For a brewery, this means estimating the number of beers sold, revenue from merchandise, and any distribution deals. The brewery will look at past sales and market trends to make these predictions.
Calculating the Discount Rate: The discount rate is like thinking about how much less a dollar is worth in the future compared to today. If I promised you a dollar in five years, you’d probably want more than just a dollar because you’d have to wait. This rate reflects the risk and opportunity cost of the money. For breweries, it includes factors like market risks and the specific risks related to the brewery itself.
Present Value Calculation: Now, take those future sales estimates and discount them to their present value. It’s like saying, “If I’m going to earn $100 in five years, how much is that worth today?” You do this for each year’s predicted earnings and add them up to get the total value.
For example, if CraftBrew predicts to earn $500,000 next year, $600,000 the following year, and so on, and we use a discount rate of 10%, the present value of these earnings might be less. You’ll find the value today is not simply the sum of those amounts due to the time value of money.
This method helps provide a detailed, forward-looking valuation. It’s essential for attracting investors because they can see the potential future earnings and decide if it’s worth investing in the brewery.
Capitalized Cash Flow Method
This method is simpler and is used when a brewery has stable, predictable earnings. Imagine your lemonade stand has been making a steady profit every month without much change. Here’s how it works:
Calculate Maintainable Cash Flow: You look at the average cash flow over a few years. Let’s say your lemonade stand consistently makes $100 a month.
Select a Capitalization Rate: This rate is like a multiplier that considers the return expected by investors. For example, if investors expect a 10% return, the capitalization rate would be 10%.
Value Calculation: Divide the maintainable cash flow by the capitalization rate. So, if your lemonade stand makes $1,200 a year and investors expect a 10% return, the value would be $1,200 / 0.10 = $12,000.
For breweries, this means looking at their stable earnings and applying this method to get a straightforward valuation. It’s useful when the business has been running smoothly without much fluctuation.
Challenges and Considerations
Accuracy of Projections: Predicting future sales can be tough, especially in an industry with fluctuating demand and trends.
Discount Rate Selection: Picking the right discount rate is crucial as it significantly impacts the valuation.
Market Conditions: The overall economic and market conditions affect the brewery’s future performance and risk profile.
2. Market Approach
The Market Approach is like checking how much other lemonade stands in your neighborhood are selling for and using that information to value your stand. It involves comparing the brewery to similar businesses that have been sold recently. You can also see a similar approach when valuing hair salons, where market comparisons provide a clear valuation benchmark.
Comparable Transaction Method
Here’s how this method works:
Identify Comparable Transactions: Find recent sales of breweries similar in size, product range, and market presence. It’s like looking at what other lemonade stands in your area sold for.
Analyze Multiples: Determine valuation multiples from these transactions, such as the ratio of the sale price to earnings. For example, if a nearby lemonade stand sold for 5 times its annual earnings, you’d consider that multiple.
Apply Multiples: Adjust these multiples based on specific factors affecting your stand or brewery, like its unique brand strength or market reach.
For breweries, this means looking at actual sales data of other breweries and adjusting for factors like location, size, and market conditions.
Guideline Public Company Method
This method involves comparing the brewery to publicly traded companies in the same industry. Though less common due to differences in scale, it provides a useful benchmark.
Select Public Companies: Identify large, publicly traded brewers with available financial data.
Adjust Multiples: Modify the public company multiples to reflect the size and risk profile of the smaller brewery. This is like comparing your lemonade stand to a large, well-known chain and adjusting for differences.
Derive Value: Apply these adjusted multiples to your brewery’s financial metrics to estimate its value.
3. Asset-Based Approach
The Asset-Based Approach is like counting all the lemons, sugar, and pitchers you have for your lemonade stand and determining their total value. For a brewery, this method focuses on the value of its tangible and intangible assets.
Steps to Valuate Using the Asset-Based Approach
Inventory of Assets: First, list all the brewery’s assets. This includes physical items like brewing equipment, real estate, and inventory. Intangible assets like trademarks, patents, and goodwill are also considered. For example, if a brewery owns a state-of-the-art brewing system, the valuation will include its current market value.
Valuation of Assets: Each asset is then assigned a value. This could be its market value (what it would sell for today), book value (its original cost minus depreciation), or liquidation value (what it would fetch if the brewery were to be sold off quickly). For example, a brewing machine bought for $50,000 five years ago might be worth $30,000 now due to depreciation.
Liabilities Subtraction: Subtract any liabilities from the total asset value. Liabilities could include debts, loans, and any other financial obligations the brewery has. If the brewery owes $100,000 in loans, this amount is deducted from the total asset value.
Net Asset Value Calculation: The result after subtracting liabilities from assets gives the net asset value (NAV). This is the baseline value of the brewery, assuming no future income.
Example Application:
Let’s consider BrewCo, a small brewery with various assets:
This method provides a clear picture of the brewery’s value based on its tangible and intangible assets.
Key Considerations and Challenges
Depreciation and Market Value: Accurate depreciation of assets and current market values are crucial for a precise valuation.
Intangible Assets: Valuing intangible assets like brand reputation and customer loyalty can be subjective and complex.
Liabilities Impact: High liabilities can significantly lower the NAV, impacting the overall valuation.
4. Multiple of Discretionary Earnings Approach
The Multiple of Discretionary Earnings (MDE) approach is akin to evaluating how much extra money your lemonade stand makes for you personally, beyond covering basic costs, and then multiplying that by a factor based on the business’s overall health and potential.
Steps to Valuate Using the MDE Approach
Calculate Discretionary Earnings: Start by determining the discretionary earnings, which are the net earnings before taxes, owner’s salary, and non-essential expenses. This represents the true earning power of the business. For a brewery, this includes profits before owner’s compensation and any non-recurring expenses.
Determine a Multiple: The next step is selecting a multiple that reflects the brewery’s potential and risk profile. This multiple is based on various factors such as industry standards, growth prospects, profitability, and market conditions. A higher multiple is applied to businesses with strong growth potential and lower risk.
Apply the Multiple: Multiply the discretionary earnings by the selected multiple to get the valuation. For instance, if a brewery’s discretionary earnings are $200,000 and the chosen multiple is 4, the valuation would be:
Valuation = $200,000 × 4 = $800,000
Example Application:
Suppose BrewMaster Brewery has:
Net earnings: $150,000
Owner’s salary: $50,000
Non-recurring expenses: $20,000
The discretionary earnings would be: $150,000 + $50,000 + $20,000 = $220,000
If BrewMaster Brewery is considered to have a moderate growth potential with a multiple of 3, the valuation would be:
Valuation = $220,000 × 3 = $660,000
Key Considerations and Challenges
Selecting the Right Multiple: Determining an appropriate multiple requires understanding the brewery’s competitive position, market conditions, and growth potential.
Accurate Earnings Calculation: Ensuring all relevant earnings and expenses are correctly accounted for is critical for an accurate valuation.
Market Fluctuations: Market conditions can significantly impact the multiple and, consequently, the valuation.
Valuation Multiples Relevant to Breweries
Understanding the different valuation multiples for breweries is key for buyers and owners. These multiples help figure out a brewery’s fair market value by looking at certain financial metrics. Common ones include Seller’s Discretionary Earnings (SDE), Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), and revenue (REV) multiples. Each one gives unique insights and is based on different financial metrics.
SDE Multiples and Their Calculation
SDE multiples are popular for small to mid-sized breweries. They show the cash flow an owner can get from the business, including extra expenses. The usual range for SDE multiples is between 3.24x and 4.19x. To calculate SDE, you add back non-operational expenses and any extra pay.
EBITDA Multiples Explained
EBITDA multiples are key for seeing how well a brewery operates. They ignore financing and accounting choices for clearer comparisons. Right now, EBITDA multiples for breweries are between 4.24x and 4.74x. To get EBITDA, you add back interest, taxes, depreciation, and amortization to net income. This helps buyers see profitability without non-operational factors.
Revenue (REV) Multiples Overview
Revenue multiples are a simple way to see a brewery’s value by its sales. They usually range from 0.84x to 1.16x, based on the brewery’s performance and market. Investors look at growth and demand when checking revenue multiples. They’re key in seeing how well a brewery turns sales into profits, showing its overall health.
Multiple Type
Typical Range
Calculation Method
SDE Multiple
3.24x – 4.19x
Net Income + Discretionary Expenses
EBITDA Multiple
4.24x – 4.74x
Net Income + Interest + Taxes + Depreciation + Amortization
Revenue Multiple
0.84x – 1.16x
Total Sales Revenue
Changes in these brewery valuation multiples show the market’s state and the industry’s challenges. Staying updated on SDE EBITDA REV multiples helps you make smart choices when valuing a brewery.
Maximizing the Value of Your Brewery
To boost your brewery’s value, focus on a few key areas. This means offering a wide range of products, making sure they get to customers fast, and keeping quality high. These steps help increase profits and keep up with market changes.
Diverse Product Line Development
Having a variety of products can help you grab more of the craft beer market. Adding things like craft seltzers or seasonal beers meets what customers want. It’s smart to keep coming up with new ideas to attract different kinds of people. In 2018, craft beer made up 24.1% of the market, showing people love variety.
Improving Distribution Channels
Getting your beer to more places means more people can buy it, which means more sales. A good plan for getting your beer out there makes customers happier. Working with local shops and eateries can help get your beer in front of more eyes and hands.
Establishing Quality Control Protocols
Keeping a close eye on quality makes sure every beer tastes great. When people trust your beer, they come back for more. This is key for long-term success. Brands that keep up high standards do better in the market, making your brewery more valuable.
Know Your Brewery’s True Worth Today!
Whether you’re planning to expand, attract investment, or sell, our expert brewery valuation services will provide you with the insights you need.
The Role of Professional Appraisers in Brewery Valuation
Hiring a brewery appraiser is key to getting an accurate and fair look at your brewery’s value. They provide insights that help with big decisions like investments, sales, or partnerships. They look at many things, like the condition of your equipment, how much people want your beer and your brewery’s financial health.
It’s important to pick an appraiser who knows the beer industry well and has the right certifications. Their knowledge helps you see what makes your brewery special and valuable. This ensures nothing important is missed. They use different financial methods to give you a full picture that matches the market.
With more people wanting craft beer, getting brewery appraisals right is more important than ever. Good evaluations help you manage your money better, use your equipment well, and plan for the future. They help avoid mistakes in judging your brewery’s worth, which could mean missing out or losing money. This approach is consistent across various industries such as when appraising gas stations.
Lenders need solid equipment valuations for loans, so accurate appraisals are key to getting the money you need. These evaluations are also important for following IRS rules and reporting. Working with a professional appraiser helps you manage your assets better. It also helps you find ways to improve, use resources wisely, and make your business better overall.
Conclusion
Learning how to value a brewery is key in the complex brewing market. This summary covered important methods, such as the income and asset approaches. These methods help you see your brewery’s true worth, and they are useful for making big decisions, like buying, selling, or improving your brewery.
At Arrowfish Consulting, we specialize in nuanced and detailed valuations tailored to unique business needs. With over 25 years of experience and dual certifications as a Certified Valuation Analyst (CVA) and Commercial Lines Coverage Specialist (CLCS), I, Jeremiah Grant, bring a wealth of expertise to every valuation project. Our team has a deep understanding of the craft beer industry and the specific factors that influence brewery valuations, ensuring you receive the most accurate and insightful analysis.
Investing in a professional valuation can unlock new opportunities for your brewery, from attracting investors to optimizing operations. Whether you need a valuation for investment purposes, sale preparation, or strategic planning, Arrowfish Consulting is here to provide the expert guidance you need.
For more detailed insights and a personalized valuation of your brewery, don’t hesitate to reach out to us at Arrowfish Consulting. Together, we can help you understand your brewery’s true worth and navigate the complexities of the market with confidence.
Jeremiah Grant
Jeremiah Grant is the Managing Partner of Arrowfish Consulting. In addition to acting as a primary liaison for many of the firm’s engagements, He primarily focuses on business valuation and economic damages expert witness assignments, in addition to forensic accounting and insurance claims analysis.
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