How breweries are valued when they are sold

What a buyer is really buying

A buyer values a brewery by what it is expected to earn, what it owns and what it could be sold for. Tanks and a lease matter, but cash flow matters more. A brewery with strong repeat sales, good records and a team that can run without the founder is worth more than one with the same equipment and none of those.

There is no single price. A strategic buyer, such as a larger brewer wanting your brand, may value things a financial buyer does not. A financial buyer looks hard at cash. Different buyers use different methods. The answer also depends on the deal terms: debt taken on, stock, payment in instalments.

Method one: a multiple of earnings

The most common shortcut multiplies a measure of annual earnings, often EBITDA, by a number. EBITDA is earnings before interest, tax, depreciation and amortisation. The multiple reflects the risk and growth of the business. It differs by market, size and period. We do not quote one here because any figure would be a guess. Ask an adviser for current comparable deals.

What you control is the earnings figure. A buyer will adjust it, for example by adding back the owner's unusual costs and deducting a market salary for the owner's job. Clean, consistent monthly accounts make those adjustments quick.

Method two: discounted cash flow

Discounted cash flow, or DCF, forecasts the free cash the brewery will produce and discounts it back to today at a rate that reflects risk. A higher-risk brewery gets a higher discount rate and a lower value. A small illustration: if a business produces 100 a year for five years and a buyer discounts at 20 per cent, the present value is about 299. The same cash discounted at 10 per cent is about 379. The cash is identical. The risk view moves the value by about a fifth.

This method is only as good as the forecast, so buyers examine the assumptions on sales, margins and capital spending.

Method three: assets

An asset approach adds up what the brewery owns and subtracts what it owes. Tanks, a canning line, stock, a lease and cash all count, at fair value, not at the price you paid. Used brewing equipment sells for much less than new. This method sets a floor and often applies when the business earns little. A brewery worth only its assets has not yet built a brand.

Brand, licences and customers

Intangibles matter but are hard to price. Licences, the right to sell in a given state, a distribution agreement, a trademark and a customer base all affect value. Alcohol is a state subject in India. The transfer of a licence is not automatic. It follows its own process that differs by state and changes, so the licence position needs advice early in any sale. Likewise, trademarks should be registered in the company's name.

What lowers the price

• Profit that depends on the founder doing every job.
• Accounts that do not reconcile, or mix personal and business spending.
• One customer or one distributor providing most of the sales.
• Equipment in poor condition or without records.
• Unclear title to the brand or recipes.
• Unresolved tax or licence issues.

Each of these either lowers the earnings figure or raises the discount rate. A buyer will find them in due diligence, which is the structured check of your accounts, contracts, licences and stock before a deal closes. It is better to find and fix them yourself first, because a problem the buyer discovers lowers the price and also the buyer's trust in everything else you have told them.

Getting ready

Start two years before you want to sell. Keep monthly management accounts, track margin by product, document your processes and make yourself less necessary. Our guide on getting the numbers ready to sell covers the pack a buyer will ask for. Ask your accountant to prepare a reconciled set of figures for the last three years and ask a lawyer to check the status of your licences, lease and trademarks. To understand how earnings, cash and cost link together, the course below walks through the full chain.

Common questions

What multiple does a brewery sell for?

It varies with size, growth, risk, market and period. We do not give a figure. Ask an adviser for recent comparable deals.

Is the equipment value the brewery's value?

Rarely. Equipment sets a floor. A brewery that earns well is usually worth more than its assets.

Does a buyer look at one year or several?

Several. Buyers want a trend, usually three years or more if the business is old enough.

Can I transfer my licence to a buyer?

It depends on the state and the process at the time. Take advice from a licensing adviser early.