October 1, 2024 • 35 mins
Join us for part one of our three-part journey into the hot topic of M&A - Mergers and Acquisitions. We begin with beer, and we're lucky to have two experts on the topic: Brewers Advisors Founder and President Mike Mitaro and corporate transactional attorney for Kudman Trachten Aloe Posner LLP, Joseph Mannarino.
Special guest cohost Brigid McCabe joins host Jimmy Moreland for a deep dive into M&A, with plenty of great advice for new and established brands.
More info on Brewers Advisors: Website
More on Kudman Trachten Aloe Posner LLP: Website
More info about MHW at https://www.mhwltd.com/
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Episode Transcript
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Speaker 1 (00:06):
Welcome to the MHW Mark podcast, where we take deep
dives into various aspects ofthe alcohol industry.
My name is Jimmy Moreland.
Mhw is a US and EU beveragealcohol importer, distributor
and service provider.
On today's episode, we are inepisode one of a special
three-part series where we willbe talking mergers and
(00:26):
acquisitions, and today, inparticular, we're talking about
the beer category, and we havetwo guests who will be taking us
into great detail in a greatconversation.
But broadly speaking, I want tointroduce our co-host, who will
be guiding us through thisjourney and hopefully providing
us a little bit of context forthis deep, weedsy conversation
(00:47):
we'll be having.
So welcome back to the program,bridget McCabe.
Speaker 2 (00:52):
Thank you very much.
I am very excited for thisthree-part series.
We're going to address M&Awithin all three verticals that
MHW represents beer, spirits andwine and you know the reason
why this matters is because somany of our clients have
successfully exited over thepast 30 years.
(01:12):
We get a lot of incomingclients who ask us how did these
exits happen?
How common are they?
How quickly does this happen?
How can I prepare, even in mybrand's infancy, if this is a
desired outcome at the end ofthe day?
So we know that this is a topicthat everyone is looking for
guidance on, and we're lucky tohave two experts with us today
(01:33):
who advise both the sellers andthe buyers on the process and
one just happens to be myhusband, so that'll be
interesting.
Speaker 1 (01:41):
And how does MHW sort of factor in for a brand who is
sort of looking to enter thisprocess?
Speaker 2 (01:47):
That's a great question.
So in the big picture, I alwayssay our business model is
really built for this.
We are the back office platformthat frees brand operators the
time, energy and finances tofocus on their sales and
marketing.
And, as you'll hear a littlebit later in the episode, that's
really the impetus for a sellerto want to purchase another
brand, and so they need the timeto really be able to not only
(02:11):
start up but then acceleratetheir brand to outpace the
competition.
And you'll hear Mike talk alittle bit about how buyers buy
a brand not necessarily asingular product or even a
company and that rings very trueto what we've experienced with
our clients, and although we doget sad to sometimes see a brand
leave our portfolio, we'rereally thrilled for them.
We've been with them every stepof the journey and it's a win
(02:34):
for us as well.
And a lot of times I can saythat we've actually been invited
to stay on after when thepurchase happens.
We help facilitate thetransition and then the buyer
will actually see how much wecan help with the operational
compliance support, so they'llkeep us on.
So it is something that we'veseen every part of the M&A
process and we're a greatplatform for brands to be able
(02:56):
to control their destiny.
Speaker 1 (02:58):
All right.
Well, our conversation does getvery, very deep into the weeds.
There's a lot of detail thatgets discussed here, so if
listeners have any questions orthey want to follow up about
something, there are links inthe show notes that you can
follow up either with MHW or,potentially, with one of our
guests directly if you've gotsome follow-up questions.
So please do that.
(03:19):
Now let's get down to businessand introduce our guests.
Our first guest is the founderand president of Brewers
Advisors.
He's founded, operated and soldfour beer companies in his
career, making him the perfectguest to speak about M&A in the
beer category.
Welcome to the show.
Mike Matero Thanks for havingme Also joining us is a
(03:42):
corporate transactional attorneyfor C Cutman Tracton Alloposner
LLP, who has represented andadvised owners of businesses in
the alcoholic, beverage,healthcare, pharmaceutical, real
estate and equipment rentalindustries in transactions with
lenders, strategic buyers,private equity groups and public
companies with more than $500million in representative
(04:02):
transactions.
Welcome to the show, JosephManorino.
Speaker 3 (04:08):
Thank you, I'm excited to be here today.
Speaker 1 (04:10):
We're excited to have both of you Now.
Longtime listeners to thispodcast know that I have an MBA
that, shall we say, hasn'tgotten a lot of use in the last
few years, so I fear that I mayknow just enough to get myself
into trouble.
So I will try to take abackseat in this conversation
and let the smart people wholive and breathe this stuff
(04:30):
daily do most of the talking.
So please, Bridget, take thefloor and save me from myself.
Speaker 2 (04:36):
Oh, jimmy, don't worry, I feel very similarly to
you, and you know the jokealways goes that you know, two
lawyers should never get married.
And so Joseph here, who's onthe podcast, he chose the
complete opposite profession forhis wife, and so I'm the
marketing director for MHW.
But I'm happy to have him, andI'm happy to have Mike on as
(04:59):
well.
Mike has been a longtimestrategic advisor to many MHW
clients.
He's brought in many to us.
We've helped out some of hisclients, and so I don't think
that there's anyone better hereto be able to talk with you
about M&A on the beer side.
So, to jump right in, I'd loveto start with Mike.
(05:21):
You have a very impressivecareer.
You founded and operatedRheingold Brewing Company, and
you also served as president andCEO of Carlsberg USA.
Eventually, carlsberg Globalwent on to be the number four
global brewer in the UnitedStates, and then you went on to
represent Carlsberg and helpedto sell it years later.
So can you share with theaudience?
How did that time on the frontlines of leadership really equip
(05:42):
you to start your advisorycompany, brewers Advisors?
Speaker 4 (05:46):
Sure, I've been at this a long time and I'm not
sure there are too many problemsthat I haven't seen and the
solutions tend to be prettyconsistent as well.
So I guess, if you've been inthis game long enough, worked
with enough companies whetherthey were my own or now, 12
years of consulting with all ofmy clients, when I work with
(06:08):
entrepreneurs, I've walked intheir shoes.
There's a lot of emotion inthis kind of a business the
excitement of the startup andeverybody's all fired up and
full of enthusiasm and temperingexpectations, and the pain of
growth, which is wonderful buthard, all the struggles, the
challenges and all that stuff.
(06:29):
I've pretty much walked thatpath now with a lot of my
clients and walked it myself.
So all those things that you doin the past bring you to
somewhere and I love consultingand helping entrepreneurs best.
I can.
Speaker 1 (06:43):
Let's talk a little bit about the legal side of
things here.
And, joe, this is for you.
I know that you've worked withMike quite a bit.
Now how do corporate attorneyslike yourself typically work
with someone who is a strategicadvisor and broker like Mike?
What's that relationship like?
Speaker 3 (06:59):
So you know, Mike has very important roles in the
transaction and I think one ofthe most important things is
figuring out what the strengthsand weaknesses of a potential
seller are and helping meunderstand those things.
And that enables him to find theright kind of buyer for a
(07:23):
particular company andunderstanding what actually is
important to the buyers in atransaction and how committed
they are to it.
If, for example, a buyer needsadditional capacity and the
target doesn't necessarily havethat, it's a transaction that
may not necessarily work.
(07:45):
The other thing that I lean onhim for is, you know, sort of
taking what the buyer'stemperature is, how enthusiastic
are they to close, how much dothey really need the transaction
to close, because it gives mesome insight into how much
leverage I have to negotiatecertain legal aspects of the
transaction, how much I want topush back on, for example,
(08:10):
indemnification or covenants orother responsibilities of the
seller.
And the other thing is, as yousaid, with your MBA you know
just enough to get in trouble.
Obviously, I as an attorneydon't have the sort of in-depth
knowledge of.
You know, the actual brewery upthat nobody anticipated and
(08:40):
that's when lawyers and sellersand buyers really tend to to
lean on the broker to to figureout a resolution to those types
of problems.
Speaker 4 (08:49):
Yeah, Joe, there's always that tension point in
every deal where every side saysI'm going to walk away and the
other guy says I'm going to walkaway, and the other guy says
I'm going to walk away, andeverybody wants to walk away
because some unknown thing cameup.
And that's when the role ofjust trying to keep everyone
together and on the same pageand bring them back comes in,
and the attorney and the someonein my role would both be doing
(09:12):
that.
Speaker 2 (09:13):
To take a couple steps back.
I'm curious.
Mhw is often working withbrands immediately after their
launch, maybe a few years aftertheir launch into several
different markets, but they'restill pretty young in their
journey.
So what advice would you giveto beverage alcohol brands about
what buyers look for and whatdefines an appealing brand to
(09:35):
acquire, so that they can makesure that they're really meeting
that criteria?
And what does winning look likehere?
Speaker 4 (09:41):
The first thing is the consumer.
It's a funny thing, but it's sosimple.
If your brand connects with theconsumer, the rest is easy.
The rest is just management.
And if the brand doesn'tconnect with the consumer, no
matter what you do, it's notgoing to work.
So everything starts withwhether the consumer wants your
(10:03):
brand.
Once you have that and thelevel of consumer demand, that
allows you to have some controlover your pricing, so your
margins are good, so yourprofitability is good, so your
cash flow is good and you'reusing your capacity the right
way.
So all of those things startwith the consumer and work that
(10:23):
way.
The other things that matterthat buyers look for is it's got
to be a fit.
That's also one of the magicwords.
If it's a fit, so if thebusinesses are compatible, the
buyer wants to buy your businessbecause he thinks he can make
more money on it than you can.
So they're going to buy it andput it into their system and
(10:45):
presumably they have synergiesthat allow them to more than pay
out the purchase price.
So that's what they're lookingfor.
And they're also looking,especially now, for low risk.
People years ago would bewilling to take more risk on a
brand that they thought mighttake off.
People, or buyers, are muchmore risk averse now that we're
(11:06):
in an industry and maybe we'lltalk about that, but we're in an
industry that's that'sstruggling.
So but what does winning looklike?
It's the greatest feeling inthe world when you're winning
and your business is winning.
When you're winning and yourbusiness is winning, as I said,
first it starts the consumerwants your brand, then your
distribution is there becausethe retailers want to carry your
brand and the distributors wantto sell your brand and
(11:29):
everybody loves you and you feellike a hero and it's all
wonderful and that's momentum.
Momentum's a powerful thing.
It's also a powerful thing inthe other direction.
And what does losing look like?
And unfortunately, there's alot of that going on right now.
I hate to use the word losing,but there are a lot of struggles
out there, because theenvironment is hard and when
(11:49):
your consumer kind of gets offyour brand and they're on to
other things maybe they're on toother beverages, or your brand
has lost a little of its cachet,or in distant markets people
just aren't buying it anymoreThen you start losing
distribution and everything Ijust went through.
The opposite kind of happens,and then it's a matter of do you
(12:10):
get out or can you get out, andis there still enough value for
a buyer to make a deal?
Speaker 2 (12:18):
That's really interesting because I think you
know, when it comes to the salesand marketing game, there's
more and more competition, andthe beer space in particular,
over the last 10 to 15 years.
What does that look like nowand I imagine it has to be
different based on theenvironment when a beer company
approaches you and asks for youto accelerate their sales and
(12:38):
marketing.
What would company approachesyou and asks for you to
accelerate their sales andmarketing, what would be your
approach and how would you kindof walk them through the steps?
Speaker 4 (12:46):
Well, it starts when they need to accelerate their
sales and marketing, there'salready an issue.
So you know, if it's a startupand they're just getting going
and there are no issues yetbecause you're just getting out
of the gate, then again you lookat the consumer and you look at
the branding.
With beer, especially the brandof beer that you hold in your
(13:07):
hand is a badge.
It's a statement about who youare, what your identity is, your
self-identity, and when I'mholding that can of beer in my
hand, I'm making a statementabout myself.
And if consumers buy into yourstatement and they wear that
badge, then your marketing isgoing to take off and do really
well.
So again, in all your marketing, whether it's social media or
(13:31):
just word of mouth or whateverit is, it's all based on that
badge and that identity that theconsumer has, and then sales
comes from that.
You can get all thedistribution in the world, but
if your brand isn't selling,it's not going to do you any
good.
You're going to lose it soonenough.
So one thing leads to anotherand it's all momentum led by the
(13:52):
consumer.
Speaker 2 (13:53):
And how, joe, I'll turn it over to you.
How can you make sure thisprocess happens compliantly and
legally?
I know you help a lot ofbusinesses set up their
ownership structures, get theirlicensing and permitting, look
at distribution agreements andthat can be, depending on the
market, a very trickyconsideration.
So what are some of the thingsyou would, you would look at?
Speaker 3 (14:13):
So the first thing I'll say when you know a new
company is thinking aboutselecting a lawyer, a lot of
companies don't like to putlegal fees up front right.
There's lots of other startupcosts that they have involved
and a lot of times it's one ofthe last things they're thinking
about and the last things thatthey want to spend money on.
(14:34):
But setting your company upcorrectly from the start can
really set it up for successover time and if the goal is an
exit, ultimately can make thatexit a lot cleaner.
The right legal partner canhelp improve the value of your
company tremendously.
In terms of what type of lawyeryou'd want to hire, you
(14:56):
wouldn't necessarily want tohire a solo practitioner who's
spread extremely thin over thenumber of different issues that
you might face, you know as ayoung beer company.
On the other side, you wouldn'tnecessarily want to hire a big
law firm where people arecharging fifteen hundred dollars
an hour and you relatively lessimportant client to them.
(15:21):
So I think choosing a lawyerthat has expertise or
relationships in areas likecontracts, who has relationships
with accountants, intellectualproperty which is extremely
important to the value of brands, real estate right you may be
le estate right you may beleasing a space, you may be
(15:43):
leasing an office, you may havea tap room.
Who has experience with finance?
Some companies may bootstrapthemselves.
Others may, you know, havemoney that they're going to
invest individually.
But a lot of companies, whenthey they're getting started,
are taking out loans, whetherthey be SBA loans, private loans
(16:03):
, raising money from friends andfamily through a private
placement.
And having a lawyer with, likeI said, with experience in all
of those different areas isextremely important because you
want to keep all of yourinformation and knowledge and
institutional knowledge in thesame place right when you move
(16:25):
things around, things get lost,takes time to catch people up to
speed and you don't sort ofbuild this deep understanding of
what a company is that canultimately be, you know,
extremely valuable to the client.
Speaker 1 (16:39):
Can I ask you know if the end goal for a brand is an
exit?
Yeah, at what point should abrand begin engaging with
specialized services, both onthe legal and the consulting
side?
Or what does that look like andwhen?
Like, what boxes need to beticked before they start going?
Ok, let's start moving thisalong.
Is it just sales numbers?
What are we looking at?
Speaker 3 (17:00):
Well, they come up as you go along, right?
So prior to selling anything,you need to get licensing and
regulatory in place.
Anything, you need to getlicensing and regulatory in
place.
When you start hiring employees, you may want to think about
contacting a lawyer about that.
(17:20):
When you lease a space, youprobably want to have a lawyer
or an expert review what yourlease looks like.
If you're taking out a loan,you probably want to have
representation.
So it sort of depends on howyour startup evolves and when
issues begin to happen.
Speaker 4 (17:36):
I'll say one thing as a practitioner.
Someone told me a long time agolisten to your lawyers and
bring them in early.
And lawyers are expensive andyou hate to get those bills, but
when you need them, thelawyering you did a couple of
years ago, boy, it sure comesback to help you when the time
comes that you need somethinglike that.
(17:56):
You may never need it, but agood attorney, someone like Joe,
the way they will review yourcontracts, keep you out of
trouble, help prevent problemsbefore they start you out of
trouble, help prevent problemsbefore they start.
Every now and then it's thatone word in a contract that
makes all the difference, and ithas helped me to have good
attorneys on the case.
Speaker 3 (18:17):
And it's, you know, one of those things where, if
you don't ask, people can't sayyes, and I find more and more in
life that when you ask forthings, people like to say yes,
but if you don't have somebodyin your corner knowing what to
ask for, you may miss out on anopportunity that you didn't even
know.
Speaker 2 (18:36):
One thing that comes to mind for me that you hear
time and time again that there'sowners that will sometimes do
handshake deal with each other.
Maybe they started as buddiesand then they created a beer
brand together and years downthe line they're looking at
whether it's selling ordissolving, whatever that might
look like and that might be amire for you to have to look
(19:00):
through.
Joe, right, if you encounter asituation like that, where
you're trying to figure outownership structure and the
legal boundaries of that all, sofor some of our clients that
are getting that ownershipstructure together and the
licensing, what are therecommendations that you have
there.
Speaker 3 (19:16):
Well, a lot of businesses these days use a
limited liability company form,so having a strong operating
agreement that is carefullyconsidered, thought out and
discussed is extremely important.
If you look at where a lot ofdisputes and litigation in the
business context arise, it'sactually because one person
(19:37):
thought the agreement was onething and the other person
thought the agreement wassomething else, and there's
nothing written on paper to saywho's right.
So actually nobody's right andyou wind up with no real good
way to resolve things.
To the extent that you writethings down in an operating
agreement or a shareholder'sagreement, it's sort of a
(19:58):
reference point that you canlook back at years later and say
, oh, this is what we actuallyagreed on, and I highly
recommend that you don't justsign some form operating
agreement when more than oneperson is involved.
Right, because it's a contractthat's going to bind you for the
rest of the life of the company.
Speaker 2 (20:16):
And Mike, a lot of times when you sell a beer brand
or, as is the case, when you'vebeen involved, there are still
expectations on you to haveinvolvement in the business post
sale, and so it's never thatyou can kind of cleanly sell it
and walk away.
There's responsibilities andobligations there.
What would you recommend tobrands in terms of, say, they do
(20:38):
have a great buyer and they'regoing through the process to
ensure that they have the bestof both worlds met here?
Speaker 4 (20:45):
Well, if you're fortunate enough as a seller to
be able to make sure that yousell to the right people, trust
and integrity are amazing thingsand when you have that,
everything is easy.
So you sell your business andmaybe it's an earn out, where
you get a certain amount of cashup front and then the buyer
pays a certain amount to theseller based on performance or
(21:09):
whatever the structure is.
Sometimes the entrepreneurstays on as a consultant or
sometimes they stay on as anemployee, but you want to sell
to people who you like and whoyou trust and who have a shared
vision.
If you have that luxury,sometimes you have to sell and
again, on the best case, what Ijust outlined is what happens.
(21:30):
And in a lot of other cases youhave people who have debt and
they may not be selling thecompany, but they're selling the
assets of the company,essentially the intellectual
property, the brands, and theysell the brand, but they still
are expected to help support,you know, usually by some kind
of consulting agreement oremployment agreement or just
(21:52):
certainly in transition, to makesure that it goes well, so that
the buyer gets what theybargained for.
Speaker 2 (21:59):
The other question and curiosity that I have
relates to when a brand islooking to sell.
Mike, you have an incrediblerepertoire of relationships and,
I think, just an uncannyability to see where a brand
might fit in another portfolio,where there's synergies there.
How does that process go about?
If, say, you have a client thatis maybe ready to walk out for
(22:23):
bid, and what does that looklike as opposed to maybe the
last 10 years?
Speaker 4 (22:27):
Things have certainly changed in the last 10 years.
Today, if it's someone who'snew to me, not someone I've
worked with, the first thing youdo is you look at their
business and their financialsand their sales performances and
you dig into all of the datathat they have and figure out
where they need to strengthentheir business.
If it's a struggling company,the first thing you have to do
(22:49):
is stabilize the business.
You might say you're not readyto sell yet.
Your company's not in aposition where you're going to
get any value for it.
A lot of people, of course,think that their company's worth
more than it is, and the valueof any company is worth what
someone's willing to pay for it.
So the first thing you have todo is help that company position
itself for a successful sale.
(23:09):
No one wants to go through theprocess and not end up with a
transaction that's painful foreveryone.
So stabilizing the business isthe first thing.
If it's declining or if thereare issues, straighten those
things out and get it done, andthen after that you want to
strengthen the business and justmake sure that the business is
in a good position for a sale.
(23:29):
Once you work with the clientto get that done, then you go
out and go through the wholeprocess of trying to figure out
who are the likely buyers forthis company, who's the best fit
and, again, who are the bestpeople, because you want to make
sure you're dealing with goodpeople.
Everything's easy if you'redealing with people who, in good
faith, want to make atransaction, as opposed to
(23:51):
someone who wants to just try tosteal something from somebody.
Speaker 2 (23:54):
And do you think that , based on how the environment's
changed, do you have anypredictions for where this
vertical is trending, and whatare some things that a seller
should keep in mind if they'retrying to achieve an exit during
this time period right now?
Speaker 4 (24:11):
Depends on what category you're in.
For craft breweries, 10 yearsago was the heyday.
Those were the golden years,and I remember standing at the
Southern Brewers Conferencegiving a speech in 2016 on the
changes to come and you couldsee the kind of curve in the
life cycle of craft beerbeginning to peak and, sure
(24:35):
enough, brands and categoriestend to have a 15 or 20 year run
and that's what craft beer had.
So the M&A atmosphere you had.
Companies like Ballast Pointsold for a billion dollars and
ended up being a tremendousoverpayment by Constellation was
the buyer in that case.
Other brands you know Lagunitaswent for a billion dollars and
(24:58):
a lot, of, a lot of brands hadvery, very high valuations that
you know that sold at the peak.
Today, what a buyer looks for istrends.
Today, what a buyer looks foris trends.
There are very few craft beerbrands that are trending up, but
those that are, the buyer looksfor that and they say, well, if
I buy this brand and put itinto my system with my
distributors, can we operatethis brand profitably and get a
(25:22):
return on our investment?
So the atmosphere is much, muchharder.
The valuations are way downversus even five years ago and
if you do have a growth brandthat's profitable, you're in a
good position.
Hopefully you have a few horsesrunning around the track and
different people bidding on it.
That's what happened years ago.
Today it's much tougher.
If you can get a couple of goodbuyers, then you're in a good
(25:44):
position.
Speaker 1 (25:45):
Joe, what advice would you give to brands who are
going to enter this process?
Maybe they've had somepreliminary talks and some
emails exchanged, but havingrepresented the seller side in
your last couple of beertransactions here, what advice
do you have for people in thatposition out there?
Speaker 3 (26:01):
Well, first I'll say that Mike Stoll probably my
number one piece of advice wasyou have to like and trust the
buyer for all of the reasonsthat he talked about.
It's somebody that you're goingto deal with, even if there is
no post-closing obligations.
You're going to deal with overthe course of a three-month,
six-month, year-long process ofgetting from sharing the initial
(26:22):
information with them toclosing, of getting from sharing
the initial information withthem to closing.
Another piece of advice I wouldgive is to get your lawyer
involved before you sign aletter of intent.
So a letter of intent is anon-binding contract, sort of an
oxymoron, but a non-bindingcontract that outlines what are
(26:50):
the most important terms of thedeal, things like purchase price
, what sort of post-closingconsideration might be paid,
whether that's debt, whetherthat's some kind of an earn out,
whether that's, you know, a percase bonus to the seller.
It will often discussnon-compete arrangements, right,
a buyer doesn't want to come in, buy a company and then the
(27:13):
seller turns around and startsstealing their business from day
one.
So that's, you know, often abig aspect of it.
And the reason that it'simportant to have a lawyer
involved in the letter of intentis it really sets the tone for
the entire transaction.
Although it's non-binding, whatis in there becomes sort of the
(27:34):
baseline assumptions for bothparties about what the terms of
the transaction are and what itwill look like as the process
moves along and it becomes, youknow, difficult for a buyer on
one hand or a seller on theother to try and change one of
those terms later on.
(27:54):
It's called like a retrade,where we have this sort of
non-binding deal and now youwant to pay me $500,000 less.
Why and the buyer may have avery good reason at that point
you know something theyuncovered in due diligence, some
liability that they didn't knowabout.
You know when they agreed topay a million dollars and now
(28:17):
you know, because of thatliability the company is
legitimately worth less.
But it prevents the buyer fromcoming back and just saying, hey
, we want to pay you $100,000less for no reason.
Because people I've found andthis is well beyond the beer
industry, but maybe particularlyin the beer industry if they
agree to do something, theygenerally do it.
(28:38):
People don't sign pieces ofpaper with the intention of
going back on their word.
So letter of intent, I think,is an underrated, extremely
important document.
Another thing for sellers tokeep in mind.
We talked about how long thetransaction may actually take to
close, but it's also theintensity of the work in
(29:00):
preparing for the transactionputting together financials,
putting together recipes,negotiating.
The difficulty of dealing withemployees who you know may be
losing their jobs or may be, youknow, offer jobs by the buyer,
keeping track of all of yourcontracts, making them available
for review.
(29:21):
And I think the more a sellerputs into the process, the sort
of the less involved in terms oftime.
At least the lawyer needs to beinvolved, right, some sellers
are extremely disorganized andit takes a lot of work for
lawyers and brokers just to putthe pieces together, to even
(29:45):
start to review or start to dothings.
So, to the extent a seller cando those kinds of things for
themselves, not only will theyhave a better understanding of
their business, not only willthey create value, but they'll
save time and money on legalexpenses.
And third is when you actuallyget to the LOI stage.
(30:05):
I think there is a tendency forsellers to overestimate the
likelihood that a deal willclose.
They sort of think all right, Ihave my LOI, I've got this
buyer, they want to pay me fivemillion dollars, the deal is
going to close 100%, when whatI've seen is significantly less
than 100% of deals actuallyclose for one reason or another,
(30:29):
and the longer deals tend to goon.
Time kills deals.
So having not a backup plan inmind, but understanding what the
future looks like if oneparticular deal does not close
is very important, and whetherthat be how you're going to deal
(30:49):
with financing, how you'regoing to find an alternative
buyer, how you're going to keepyour employees happy, how you
may decide to continue justrunning the business if a
particular transaction fallsthrough, is definitely something
to keep in mind for sellers.
Speaker 1 (31:06):
For our listeners who have their own brands and they
feel like maybe they're ready ormaybe they've got questions
about for when they are ready.
How can they start preparingthemselves as far as like
self-education?
Should they just go ahead andgive one of you a call or shoot
you an email?
Is there a website?
Is there a book they shouldread?
What's sort of an easy nextstep from this podcast?
(31:27):
What can they do today?
Speaker 4 (31:28):
I talk to people every week who are interested in
selling their businesses eithersooner or down the road, and
it's always an interestingconversation and for most of
them it's you're not ready tosell your business yet.
Now is not the time.
There are some things you haveto do to get it ready, and so
the earlier people initiatethose conversations.
(31:51):
You know, I I talk to peopleall the time and I don't charge
people for something like thatand you just try to understand
and I learn a lot from everyoneI talk to.
Everyone's got a different setof issues.
There's a lot of commonality,but if I'm either an importer or
a brewer or have anon-alcoholic beverage company,
(32:11):
I would make that phone callsooner, because I always say
when something can do you somegood but it can't do you any
harm, then go ahead and do it,make the phone call and get the
advice and take it or don't takeit, but no reason not to ask
for it.
Speaker 1 (32:33):
All right.
Well, to bring us up out of theweeds, we'll wrap up with our
favorite fun question that wealways like to ask on the
podcast here, and that is whatis your favorite alcoholic
beverage these days?
Speaker 3 (32:41):
And we'll start with you, joe, I pretty much
exclusively drink beer, so Imean not to the exclusion of all
other beverages.
Speaker 1 (32:49):
No water for Joe.
Speaker 3 (32:51):
No water, coffee and beer are pretty much my big
three.
For a mass market beer, I likeGoose Island.
For sort of a smaller brewery,I like Cigar City Highline,
which I'm actually seeing youknow more and more places these
days.
And for a small craft brewery,bridget and I used to live about
(33:15):
a block away from a brewery inAstoria, queens, called Single
Cut that makes amazing smallbatch beers of every kind.
So those are my three.
Speaker 2 (33:28):
And, as a marketing person, I absolutely loved their
packaging.
They always had very uniquegraphic design for each skew.
Speaker 1 (33:37):
So I would go just to appreciate that.
Mike.
Speaker 4 (33:41):
I always say it's a better time when you have a beer
in your hand than when youdon't.
And I love beer.
So I'm more of a lager pilsnerguy, and if the beer is fresh I
can taste fresh beer instantlyand I can smell the old beer
before I even taste it.
So if the beer is fresh andit's good quality, I love it, I
(34:04):
don't care what the brand is Allright.
Speaker 1 (34:06):
So we've got Joe with it Sounds Like More of an IPA
Guy and Mike with your Lagersand Pilsners Very good.
Well, for folks who want tofind out more, check out
brewersadvisorscom to see what'sgoing on with Mike, and we'll
(34:26):
have links in the show notes foranybody who's really interested
in following up with either ofour guests.
So thank you so much, mikeMatero and Joseph Manorino, for
stopping by.
Thank you, Thanks for having meand thank you listeners for
joining us on the MHW Markpodcast, and thanks again to
Bridget McCabe for joining me inhosting Absolutely.
This podcast is produced by me,jimmy Moreland, with booking
and planning support by CassidyPoe.
It's presented by MHW.
(34:47):
Find out more at mhwltdcom orconnect with MHW on LinkedIn.
Lend us a hand by subscribing,rating and reviewing this
podcast wherever you listen.
We'll be back in your feed intwo weeks with part two of this
special series.
We'll see you then, cheers.
Welcome to the MHW Mark podcast, where we take deep
dives into various aspects ofthe alcohol industry.
My name is Jimmy Moreland.
Mhw is a US and EU beveragealcohol importer, distributor
and service provider.
On today's episode, we are inepisode one of a special
three-part series where we willbe talking mergers and
(00:26):
acquisitions, and today, inparticular, we're talking about
the beer category, and we havetwo guests who will be taking us
into great detail in a greatconversation.
But broadly speaking, I want tointroduce our co-host, who will
be guiding us through thisjourney and hopefully providing
us a little bit of context forthis deep, weedsy conversation
(00:47):
we'll be having.
So welcome back to the program,bridget McCabe.
Speaker 2 (00:52):
Thank you very much.
I am very excited for thisthree-part series.
We're going to address M&Awithin all three verticals that
MHW represents beer, spirits andwine and you know the reason
why this matters is because somany of our clients have
successfully exited over thepast 30 years.
(01:12):
We get a lot of incomingclients who ask us how did these
exits happen?
How common are they?
How quickly does this happen?
How can I prepare, even in mybrand's infancy, if this is a
desired outcome at the end ofthe day?
So we know that this is a topicthat everyone is looking for
guidance on, and we're lucky tohave two experts with us today
(01:33):
who advise both the sellers andthe buyers on the process and
one just happens to be myhusband, so that'll be
interesting.
Speaker 1 (01:41):
And how does MHW sort of factor in for a brand who is
sort of looking to enter thisprocess?
Speaker 2 (01:47):
That's a great question.
So in the big picture, I alwayssay our business model is
really built for this.
We are the back office platformthat frees brand operators the
time, energy and finances tofocus on their sales and
marketing.
And, as you'll hear a littlebit later in the episode, that's
really the impetus for a sellerto want to purchase another
brand, and so they need the timeto really be able to not only
(02:11):
start up but then acceleratetheir brand to outpace the
competition.
And you'll hear Mike talk alittle bit about how buyers buy
a brand not necessarily asingular product or even a
company and that rings very trueto what we've experienced with
our clients, and although we doget sad to sometimes see a brand
leave our portfolio, we'rereally thrilled for them.
We've been with them every stepof the journey and it's a win
(02:34):
for us as well.
And a lot of times I can saythat we've actually been invited
to stay on after when thepurchase happens.
We help facilitate thetransition and then the buyer
will actually see how much wecan help with the operational
compliance support, so they'llkeep us on.
So it is something that we'veseen every part of the M&A
process and we're a greatplatform for brands to be able
(02:56):
to control their destiny.
Speaker 1 (02:58):
All right.
Well, our conversation does getvery, very deep into the weeds.
There's a lot of detail thatgets discussed here, so if
listeners have any questions orthey want to follow up about
something, there are links inthe show notes that you can
follow up either with MHW or,potentially, with one of our
guests directly if you've gotsome follow-up questions.
So please do that.
(03:19):
Now let's get down to businessand introduce our guests.
Our first guest is the founderand president of Brewers
Advisors.
He's founded, operated and soldfour beer companies in his
career, making him the perfectguest to speak about M&A in the
beer category.
Welcome to the show.
Mike Matero Thanks for havingme Also joining us is a
(03:42):
corporate transactional attorneyfor C Cutman Tracton Alloposner
LLP, who has represented andadvised owners of businesses in
the alcoholic, beverage,healthcare, pharmaceutical, real
estate and equipment rentalindustries in transactions with
lenders, strategic buyers,private equity groups and public
companies with more than $500million in representative
(04:02):
transactions.
Welcome to the show, JosephManorino.
Speaker 3 (04:08):
Thank you, I'm excited to be here today.
Speaker 1 (04:10):
We're excited to have both of you Now.
Longtime listeners to thispodcast know that I have an MBA
that, shall we say, hasn'tgotten a lot of use in the last
few years, so I fear that I mayknow just enough to get myself
into trouble.
So I will try to take abackseat in this conversation
and let the smart people wholive and breathe this stuff
(04:30):
daily do most of the talking.
So please, Bridget, take thefloor and save me from myself.
Speaker 2 (04:36):
Oh, jimmy, don't worry, I feel very similarly to
you, and you know the jokealways goes that you know, two
lawyers should never get married.
And so Joseph here, who's onthe podcast, he chose the
complete opposite profession forhis wife, and so I'm the
marketing director for MHW.
But I'm happy to have him, andI'm happy to have Mike on as
(04:59):
well.
Mike has been a longtimestrategic advisor to many MHW
clients.
He's brought in many to us.
We've helped out some of hisclients, and so I don't think
that there's anyone better hereto be able to talk with you
about M&A on the beer side.
So, to jump right in, I'd loveto start with Mike.
(05:21):
You have a very impressivecareer.
You founded and operatedRheingold Brewing Company, and
you also served as president andCEO of Carlsberg USA.
Eventually, carlsberg Globalwent on to be the number four
global brewer in the UnitedStates, and then you went on to
represent Carlsberg and helpedto sell it years later.
So can you share with theaudience?
How did that time on the frontlines of leadership really equip
(05:42):
you to start your advisorycompany, brewers Advisors?
Speaker 4 (05:46):
Sure, I've been at this a long time and I'm not
sure there are too many problemsthat I haven't seen and the
solutions tend to be prettyconsistent as well.
So I guess, if you've been inthis game long enough, worked
with enough companies whetherthey were my own or now, 12
years of consulting with all ofmy clients, when I work with
(06:08):
entrepreneurs, I've walked intheir shoes.
There's a lot of emotion inthis kind of a business the
excitement of the startup andeverybody's all fired up and
full of enthusiasm and temperingexpectations, and the pain of
growth, which is wonderful buthard, all the struggles, the
challenges and all that stuff.
(06:29):
I've pretty much walked thatpath now with a lot of my
clients and walked it myself.
So all those things that you doin the past bring you to
somewhere and I love consultingand helping entrepreneurs best.
I can.
Speaker 1 (06:43):
Let's talk a little bit about the legal side of
things here.
And, joe, this is for you.
I know that you've worked withMike quite a bit.
Now how do corporate attorneyslike yourself typically work
with someone who is a strategicadvisor and broker like Mike?
What's that relationship like?
Speaker 3 (06:59):
So you know, Mike has very important roles in the
transaction and I think one ofthe most important things is
figuring out what the strengthsand weaknesses of a potential
seller are and helping meunderstand those things.
And that enables him to find theright kind of buyer for a
(07:23):
particular company andunderstanding what actually is
important to the buyers in atransaction and how committed
they are to it.
If, for example, a buyer needsadditional capacity and the
target doesn't necessarily havethat, it's a transaction that
may not necessarily work.
(07:45):
The other thing that I lean onhim for is, you know, sort of
taking what the buyer'stemperature is, how enthusiastic
are they to close, how much dothey really need the transaction
to close, because it gives mesome insight into how much
leverage I have to negotiatecertain legal aspects of the
transaction, how much I want topush back on, for example,
(08:10):
indemnification or covenants orother responsibilities of the
seller.
And the other thing is, as yousaid, with your MBA you know
just enough to get in trouble.
Obviously, I as an attorneydon't have the sort of in-depth
knowledge of.
You know, the actual brewery upthat nobody anticipated and
(08:40):
that's when lawyers and sellersand buyers really tend to to
lean on the broker to to figureout a resolution to those types
of problems.
Speaker 4 (08:49):
Yeah, Joe, there's always that tension point in
every deal where every side saysI'm going to walk away and the
other guy says I'm going to walkaway, and the other guy says
I'm going to walk away, andeverybody wants to walk away
because some unknown thing cameup.
And that's when the role ofjust trying to keep everyone
together and on the same pageand bring them back comes in,
and the attorney and the someonein my role would both be doing
(09:12):
that.
Speaker 2 (09:13):
To take a couple steps back.
I'm curious.
Mhw is often working withbrands immediately after their
launch, maybe a few years aftertheir launch into several
different markets, but they'restill pretty young in their
journey.
So what advice would you giveto beverage alcohol brands about
what buyers look for and whatdefines an appealing brand to
(09:35):
acquire, so that they can makesure that they're really meeting
that criteria?
And what does winning look likehere?
Speaker 4 (09:41):
The first thing is the consumer.
It's a funny thing, but it's sosimple.
If your brand connects with theconsumer, the rest is easy.
The rest is just management.
And if the brand doesn'tconnect with the consumer, no
matter what you do, it's notgoing to work.
So everything starts withwhether the consumer wants your
(10:03):
brand.
Once you have that and thelevel of consumer demand, that
allows you to have some controlover your pricing, so your
margins are good, so yourprofitability is good, so your
cash flow is good and you'reusing your capacity the right
way.
So all of those things startwith the consumer and work that
(10:23):
way.
The other things that matterthat buyers look for is it's got
to be a fit.
That's also one of the magicwords.
If it's a fit, so if thebusinesses are compatible, the
buyer wants to buy your businessbecause he thinks he can make
more money on it than you can.
So they're going to buy it andput it into their system and
(10:45):
presumably they have synergiesthat allow them to more than pay
out the purchase price.
So that's what they're lookingfor.
And they're also looking,especially now, for low risk.
People years ago would bewilling to take more risk on a
brand that they thought mighttake off.
People, or buyers, are muchmore risk averse now that we're
(11:06):
in an industry and maybe we'lltalk about that, but we're in an
industry that's that'sstruggling.
So but what does winning looklike?
It's the greatest feeling inthe world when you're winning
and your business is winning.
When you're winning and yourbusiness is winning, as I said,
first it starts the consumerwants your brand, then your
distribution is there becausethe retailers want to carry your
brand and the distributors wantto sell your brand and
(11:29):
everybody loves you and you feellike a hero and it's all
wonderful and that's momentum.
Momentum's a powerful thing.
It's also a powerful thing inthe other direction.
And what does losing look like?
And unfortunately, there's alot of that going on right now.
I hate to use the word losing,but there are a lot of struggles
out there, because theenvironment is hard and when
(11:49):
your consumer kind of gets offyour brand and they're on to
other things maybe they're on toother beverages, or your brand
has lost a little of its cachet,or in distant markets people
just aren't buying it anymoreThen you start losing
distribution and everything Ijust went through.
The opposite kind of happens,and then it's a matter of do you
(12:10):
get out or can you get out, andis there still enough value for
a buyer to make a deal?
Speaker 2 (12:18):
That's really interesting because I think you
know, when it comes to the salesand marketing game, there's
more and more competition, andthe beer space in particular,
over the last 10 to 15 years.
What does that look like nowand I imagine it has to be
different based on theenvironment when a beer company
approaches you and asks for youto accelerate their sales and
(12:38):
marketing.
What would company approachesyou and asks for you to
accelerate their sales andmarketing, what would be your
approach and how would you kindof walk them through the steps?
Speaker 4 (12:46):
Well, it starts when they need to accelerate their
sales and marketing, there'salready an issue.
So you know, if it's a startupand they're just getting going
and there are no issues yetbecause you're just getting out
of the gate, then again you lookat the consumer and you look at
the branding.
With beer, especially the brandof beer that you hold in your
(13:07):
hand is a badge.
It's a statement about who youare, what your identity is, your
self-identity, and when I'mholding that can of beer in my
hand, I'm making a statementabout myself.
And if consumers buy into yourstatement and they wear that
badge, then your marketing isgoing to take off and do really
well.
So again, in all your marketing, whether it's social media or
(13:31):
just word of mouth or whateverit is, it's all based on that
badge and that identity that theconsumer has, and then sales
comes from that.
You can get all thedistribution in the world, but
if your brand isn't selling,it's not going to do you any
good.
You're going to lose it soonenough.
So one thing leads to anotherand it's all momentum led by the
(13:52):
consumer.
Speaker 2 (13:53):
And how, joe, I'll turn it over to you.
How can you make sure thisprocess happens compliantly and
legally?
I know you help a lot ofbusinesses set up their
ownership structures, get theirlicensing and permitting, look
at distribution agreements andthat can be, depending on the
market, a very trickyconsideration.
So what are some of the thingsyou would, you would look at?
Speaker 3 (14:13):
So the first thing I'll say when you know a new
company is thinking aboutselecting a lawyer, a lot of
companies don't like to putlegal fees up front right.
There's lots of other startupcosts that they have involved
and a lot of times it's one ofthe last things they're thinking
about and the last things thatthey want to spend money on.
(14:34):
But setting your company upcorrectly from the start can
really set it up for successover time and if the goal is an
exit, ultimately can make thatexit a lot cleaner.
The right legal partner canhelp improve the value of your
company tremendously.
In terms of what type of lawyeryou'd want to hire, you
(14:56):
wouldn't necessarily want tohire a solo practitioner who's
spread extremely thin over thenumber of different issues that
you might face, you know as ayoung beer company.
On the other side, you wouldn'tnecessarily want to hire a big
law firm where people arecharging fifteen hundred dollars
an hour and you relatively lessimportant client to them.
(15:21):
So I think choosing a lawyerthat has expertise or
relationships in areas likecontracts, who has relationships
with accountants, intellectualproperty which is extremely
important to the value of brands, real estate right you may be
le estate right you may beleasing a space, you may be
(15:43):
leasing an office, you may havea tap room.
Who has experience with finance?
Some companies may bootstrapthemselves.
Others may, you know, havemoney that they're going to
invest individually.
But a lot of companies, whenthey they're getting started,
are taking out loans, whetherthey be SBA loans, private loans
(16:03):
, raising money from friends andfamily through a private
placement.
And having a lawyer with, likeI said, with experience in all
of those different areas isextremely important because you
want to keep all of yourinformation and knowledge and
institutional knowledge in thesame place right when you move
(16:25):
things around, things get lost,takes time to catch people up to
speed and you don't sort ofbuild this deep understanding of
what a company is that canultimately be, you know,
extremely valuable to the client.
Speaker 1 (16:39):
Can I ask you know if the end goal for a brand is an
exit?
Yeah, at what point should abrand begin engaging with
specialized services, both onthe legal and the consulting
side?
Or what does that look like andwhen?
Like, what boxes need to beticked before they start going?
Ok, let's start moving thisalong.
Is it just sales numbers?
What are we looking at?
Speaker 3 (17:00):
Well, they come up as you go along, right?
So prior to selling anything,you need to get licensing and
regulatory in place.
Anything, you need to getlicensing and regulatory in
place.
When you start hiring employees, you may want to think about
contacting a lawyer about that.
(17:20):
When you lease a space, youprobably want to have a lawyer
or an expert review what yourlease looks like.
If you're taking out a loan,you probably want to have
representation.
So it sort of depends on howyour startup evolves and when
issues begin to happen.
Speaker 4 (17:36):
I'll say one thing as a practitioner.
Someone told me a long time agolisten to your lawyers and
bring them in early.
And lawyers are expensive andyou hate to get those bills, but
when you need them, thelawyering you did a couple of
years ago, boy, it sure comesback to help you when the time
comes that you need somethinglike that.
(17:56):
You may never need it, but agood attorney, someone like Joe,
the way they will review yourcontracts, keep you out of
trouble, help prevent problemsbefore they start you out of
trouble, help prevent problemsbefore they start.
Every now and then it's thatone word in a contract that
makes all the difference, and ithas helped me to have good
attorneys on the case.
Speaker 3 (18:17):
And it's, you know, one of those things where, if
you don't ask, people can't sayyes, and I find more and more in
life that when you ask forthings, people like to say yes,
but if you don't have somebodyin your corner knowing what to
ask for, you may miss out on anopportunity that you didn't even
know.
Speaker 2 (18:36):
One thing that comes to mind for me that you hear
time and time again that there'sowners that will sometimes do
handshake deal with each other.
Maybe they started as buddiesand then they created a beer
brand together and years downthe line they're looking at
whether it's selling ordissolving, whatever that might
look like and that might be amire for you to have to look
(19:00):
through.
Joe, right, if you encounter asituation like that, where
you're trying to figure outownership structure and the
legal boundaries of that all, sofor some of our clients that
are getting that ownershipstructure together and the
licensing, what are therecommendations that you have
there.
Speaker 3 (19:16):
Well, a lot of businesses these days use a
limited liability company form,so having a strong operating
agreement that is carefullyconsidered, thought out and
discussed is extremely important.
If you look at where a lot ofdisputes and litigation in the
business context arise, it'sactually because one person
(19:37):
thought the agreement was onething and the other person
thought the agreement wassomething else, and there's
nothing written on paper to saywho's right.
So actually nobody's right andyou wind up with no real good
way to resolve things.
To the extent that you writethings down in an operating
agreement or a shareholder'sagreement, it's sort of a
(19:58):
reference point that you canlook back at years later and say
, oh, this is what we actuallyagreed on, and I highly
recommend that you don't justsign some form operating
agreement when more than oneperson is involved.
Right, because it's a contractthat's going to bind you for the
rest of the life of the company.
Speaker 2 (20:16):
And Mike, a lot of times when you sell a beer brand
or, as is the case, when you'vebeen involved, there are still
expectations on you to haveinvolvement in the business post
sale, and so it's never thatyou can kind of cleanly sell it
and walk away.
There's responsibilities andobligations there.
What would you recommend tobrands in terms of, say, they do
(20:38):
have a great buyer and they'regoing through the process to
ensure that they have the bestof both worlds met here?
Speaker 4 (20:45):
Well, if you're fortunate enough as a seller to
be able to make sure that yousell to the right people, trust
and integrity are amazing thingsand when you have that,
everything is easy.
So you sell your business andmaybe it's an earn out, where
you get a certain amount of cashup front and then the buyer
pays a certain amount to theseller based on performance or
(21:09):
whatever the structure is.
Sometimes the entrepreneurstays on as a consultant or
sometimes they stay on as anemployee, but you want to sell
to people who you like and whoyou trust and who have a shared
vision.
If you have that luxury,sometimes you have to sell and
again, on the best case, what Ijust outlined is what happens.
(21:30):
And in a lot of other cases youhave people who have debt and
they may not be selling thecompany, but they're selling the
assets of the company,essentially the intellectual
property, the brands, and theysell the brand, but they still
are expected to help support,you know, usually by some kind
of consulting agreement oremployment agreement or just
(21:52):
certainly in transition, to makesure that it goes well, so that
the buyer gets what theybargained for.
Speaker 2 (21:59):
The other question and curiosity that I have
relates to when a brand islooking to sell.
Mike, you have an incrediblerepertoire of relationships and,
I think, just an uncannyability to see where a brand
might fit in another portfolio,where there's synergies there.
How does that process go about?
If, say, you have a client thatis maybe ready to walk out for
(22:23):
bid, and what does that looklike as opposed to maybe the
last 10 years?
Speaker 4 (22:27):
Things have certainly changed in the last 10 years.
Today, if it's someone who'snew to me, not someone I've
worked with, the first thing youdo is you look at their
business and their financialsand their sales performances and
you dig into all of the datathat they have and figure out
where they need to strengthentheir business.
If it's a struggling company,the first thing you have to do
(22:49):
is stabilize the business.
You might say you're not readyto sell yet.
Your company's not in aposition where you're going to
get any value for it.
A lot of people, of course,think that their company's worth
more than it is, and the valueof any company is worth what
someone's willing to pay for it.
So the first thing you have todo is help that company position
itself for a successful sale.
(23:09):
No one wants to go through theprocess and not end up with a
transaction that's painful foreveryone.
So stabilizing the business isthe first thing.
If it's declining or if thereare issues, straighten those
things out and get it done, andthen after that you want to
strengthen the business and justmake sure that the business is
in a good position for a sale.
(23:29):
Once you work with the clientto get that done, then you go
out and go through the wholeprocess of trying to figure out
who are the likely buyers forthis company, who's the best fit
and, again, who are the bestpeople, because you want to make
sure you're dealing with goodpeople.
Everything's easy if you'redealing with people who, in good
faith, want to make atransaction, as opposed to
(23:51):
someone who wants to just try tosteal something from somebody.
Speaker 2 (23:54):
And do you think that , based on how the environment's
changed, do you have anypredictions for where this
vertical is trending, and whatare some things that a seller
should keep in mind if they'retrying to achieve an exit during
this time period right now?
Speaker 4 (24:11):
Depends on what category you're in.
For craft breweries, 10 yearsago was the heyday.
Those were the golden years,and I remember standing at the
Southern Brewers Conferencegiving a speech in 2016 on the
changes to come and you couldsee the kind of curve in the
life cycle of craft beerbeginning to peak and, sure
(24:35):
enough, brands and categoriestend to have a 15 or 20 year run
and that's what craft beer had.
So the M&A atmosphere you had.
Companies like Ballast Pointsold for a billion dollars and
ended up being a tremendousoverpayment by Constellation was
the buyer in that case.
Other brands you know Lagunitaswent for a billion dollars and
(24:58):
a lot, of, a lot of brands hadvery, very high valuations that
you know that sold at the peak.
Today, what a buyer looks for istrends.
Today, what a buyer looks foris trends.
There are very few craft beerbrands that are trending up, but
those that are, the buyer looksfor that and they say, well, if
I buy this brand and put itinto my system with my
distributors, can we operatethis brand profitably and get a
(25:22):
return on our investment?
So the atmosphere is much, muchharder.
The valuations are way downversus even five years ago and
if you do have a growth brandthat's profitable, you're in a
good position.
Hopefully you have a few horsesrunning around the track and
different people bidding on it.
That's what happened years ago.
Today it's much tougher.
If you can get a couple of goodbuyers, then you're in a good
(25:44):
position.
Speaker 1 (25:45):
Joe, what advice would you give to brands who are
going to enter this process?
Maybe they've had somepreliminary talks and some
emails exchanged, but havingrepresented the seller side in
your last couple of beertransactions here, what advice
do you have for people in thatposition out there?
Speaker 3 (26:01):
Well, first I'll say that Mike Stoll probably my
number one piece of advice wasyou have to like and trust the
buyer for all of the reasonsthat he talked about.
It's somebody that you're goingto deal with, even if there is
no post-closing obligations.
You're going to deal with overthe course of a three-month,
six-month, year-long process ofgetting from sharing the initial
(26:22):
information with them toclosing, of getting from sharing
the initial information withthem to closing.
Another piece of advice I wouldgive is to get your lawyer
involved before you sign aletter of intent.
So a letter of intent is anon-binding contract, sort of an
oxymoron, but a non-bindingcontract that outlines what are
(26:50):
the most important terms of thedeal, things like purchase price
, what sort of post-closingconsideration might be paid,
whether that's debt, whetherthat's some kind of an earn out,
whether that's, you know, a percase bonus to the seller.
It will often discussnon-compete arrangements, right,
a buyer doesn't want to come in, buy a company and then the
(27:13):
seller turns around and startsstealing their business from day
one.
So that's, you know, often abig aspect of it.
And the reason that it'simportant to have a lawyer
involved in the letter of intentis it really sets the tone for
the entire transaction.
Although it's non-binding, whatis in there becomes sort of the
(27:34):
baseline assumptions for bothparties about what the terms of
the transaction are and what itwill look like as the process
moves along and it becomes, youknow, difficult for a buyer on
one hand or a seller on theother to try and change one of
those terms later on.
(27:54):
It's called like a retrade,where we have this sort of
non-binding deal and now youwant to pay me $500,000 less.
Why and the buyer may have avery good reason at that point
you know something theyuncovered in due diligence, some
liability that they didn't knowabout.
You know when they agreed topay a million dollars and now
(28:17):
you know, because of thatliability the company is
legitimately worth less.
But it prevents the buyer fromcoming back and just saying, hey
, we want to pay you $100,000less for no reason.
Because people I've found andthis is well beyond the beer
industry, but maybe particularlyin the beer industry if they
agree to do something, theygenerally do it.
(28:38):
People don't sign pieces ofpaper with the intention of
going back on their word.
So letter of intent, I think,is an underrated, extremely
important document.
Another thing for sellers tokeep in mind.
We talked about how long thetransaction may actually take to
close, but it's also theintensity of the work in
(29:00):
preparing for the transactionputting together financials,
putting together recipes,negotiating.
The difficulty of dealing withemployees who you know may be
losing their jobs or may be, youknow, offer jobs by the buyer,
keeping track of all of yourcontracts, making them available
for review.
(29:21):
And I think the more a sellerputs into the process, the sort
of the less involved in terms oftime.
At least the lawyer needs to beinvolved, right, some sellers
are extremely disorganized andit takes a lot of work for
lawyers and brokers just to putthe pieces together, to even
(29:45):
start to review or start to dothings.
So, to the extent a seller cando those kinds of things for
themselves, not only will theyhave a better understanding of
their business, not only willthey create value, but they'll
save time and money on legalexpenses.
And third is when you actuallyget to the LOI stage.
(30:05):
I think there is a tendency forsellers to overestimate the
likelihood that a deal willclose.
They sort of think all right, Ihave my LOI, I've got this
buyer, they want to pay me fivemillion dollars, the deal is
going to close 100%, when whatI've seen is significantly less
than 100% of deals actuallyclose for one reason or another,
(30:29):
and the longer deals tend to goon.
Time kills deals.
So having not a backup plan inmind, but understanding what the
future looks like if oneparticular deal does not close
is very important, and whetherthat be how you're going to deal
(30:49):
with financing, how you'regoing to find an alternative
buyer, how you're going to keepyour employees happy, how you
may decide to continue justrunning the business if a
particular transaction fallsthrough, is definitely something
to keep in mind for sellers.
Speaker 1 (31:06):
For our listeners who have their own brands and they
feel like maybe they're ready ormaybe they've got questions
about for when they are ready.
How can they start preparingthemselves as far as like
self-education?
Should they just go ahead andgive one of you a call or shoot
you an email?
Is there a website?
Is there a book they shouldread?
What's sort of an easy nextstep from this podcast?
(31:27):
What can they do today?
Speaker 4 (31:28):
I talk to people every week who are interested in
selling their businesses eithersooner or down the road, and
it's always an interestingconversation and for most of
them it's you're not ready tosell your business yet.
Now is not the time.
There are some things you haveto do to get it ready, and so
the earlier people initiatethose conversations.
(31:51):
You know, I I talk to peopleall the time and I don't charge
people for something like thatand you just try to understand
and I learn a lot from everyoneI talk to.
Everyone's got a different setof issues.
There's a lot of commonality,but if I'm either an importer or
a brewer or have anon-alcoholic beverage company,
(32:11):
I would make that phone callsooner, because I always say
when something can do you somegood but it can't do you any
harm, then go ahead and do it,make the phone call and get the
advice and take it or don't takeit, but no reason not to ask
for it.
Speaker 1 (32:33):
All right.
Well, to bring us up out of theweeds, we'll wrap up with our
favorite fun question that wealways like to ask on the
podcast here, and that is whatis your favorite alcoholic
beverage these days?
Speaker 3 (32:41):
And we'll start with you, joe, I pretty much
exclusively drink beer, so Imean not to the exclusion of all
other beverages.
Speaker 1 (32:49):
No water for Joe.
Speaker 3 (32:51):
No water, coffee and beer are pretty much my big
three.
For a mass market beer, I likeGoose Island.
For sort of a smaller brewery,I like Cigar City Highline,
which I'm actually seeing youknow more and more places these
days.
And for a small craft brewery,bridget and I used to live about
(33:15):
a block away from a brewery inAstoria, queens, called Single
Cut that makes amazing smallbatch beers of every kind.
So those are my three.
Speaker 2 (33:28):
And, as a marketing person, I absolutely loved their
packaging.
They always had very uniquegraphic design for each skew.
Speaker 1 (33:37):
So I would go just to appreciate that.
Mike.
Speaker 4 (33:41):
I always say it's a better time when you have a beer
in your hand than when youdon't.
And I love beer.
So I'm more of a lager pilsnerguy, and if the beer is fresh I
can taste fresh beer instantlyand I can smell the old beer
before I even taste it.
So if the beer is fresh andit's good quality, I love it, I
(34:04):
don't care what the brand is Allright.
Speaker 1 (34:06):
So we've got Joe with it Sounds Like More of an IPA
Guy and Mike with your Lagersand Pilsners Very good.
Well, for folks who want tofind out more, check out
brewersadvisorscom to see what'sgoing on with Mike, and we'll
(34:26):
have links in the show notes foranybody who's really interested
in following up with either ofour guests.
So thank you so much, mikeMatero and Joseph Manorino, for
stopping by.
Thank you, Thanks for having meand thank you listeners for
joining us on the MHW Markpodcast, and thanks again to
Bridget McCabe for joining me inhosting Absolutely.
This podcast is produced by me,jimmy Moreland, with booking
and planning support by CassidyPoe.
It's presented by MHW.
(34:47):
Find out more at mhwltdcom orconnect with MHW on LinkedIn.
Lend us a hand by subscribing,rating and reviewing this
podcast wherever you listen.
We'll be back in your feed intwo weeks with part two of this
special series.
We'll see you then, cheers.
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