ColoradoDistiller

General Distillery Valuation Question

8 posts in this topic

We are thinking about buying a building and building out a much bigger operation - we would need investors for this. I'm curious how distilleries value themselves?

Is it just like any other small business where you look at revenue, assets, and future earnings growth, or is there anything unique to our industry? I assume it's a little bit easier to raise money from mom & pop investors as it's a cool braggable industry.

Any examples of valuation  metrics or personal stories?

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This is a tough one mate.  valuation on a startup distillery is hard because of the shear time it takes from "start" to actual "sales".  A couple things to consider are:

1. What do you bring to operation?  In terms of time and money.

2. What does other person bring to table? Are they putting in time?  how much money?

Pre-startup and revenue is almost impossible to decide, but time and money are the metrics.

 

John

 

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To clarify - we're not a startup:

 

Doing sales for 6 months, open for 18 months.

We've managed to keep overhead very low, as we are primarily filling whiskey barrels and selling our white dog, but we have our lease expire in 18 months and would like to buy a permanent facility.

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From personal experience: Keen investors will make up their own numbers, other people will be in it to help out with profit as a secondary motive. 

With less than 3-5 years of sales history it will be hard to build any kind of model that a savvy investor will follow. Since you're newer you have a lot of startup costs in your numbers that will throw off a valuation. Go to a lawyer or business broker and see if they can help looking at pier company sales. If you look at it sans the alcohol piece, you're a manufacturer. The below article below states 4x margins. To go above that you would need to prove you're either low risk (valuable patents, brand names) or very high profit margin. The other piece is are you or other people in the company taking a salary or living off stock options/distributions? Most investors want to see the company able to stand on its own with everyone taking a salary. They may add in the cost of a person doing those jobs and look at the margins then. 

http://smallbusiness.chron.com/estimate-value-small-business-4124.html  

For a larger investor they might look at convertible debt to protect the investment. If you're not trying to raise a huge amount then I would go for smaller Mom and Pop people like you said. The coolness factor should be enough if you give them an good deal. 

 

 

 

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I've seen a couple investor prospectuses recently that claimed $1000 per annual case sold is one industry standard valuation (i.e. Deep Eddy selling for $350M with 350K cases sold annually).  I've also seen successful equity raises by smaller distilleries that are comparable with that valuation multiple.  Of course I believe High West just sold for $160M with 75K in case volume, which is more than double that "standard" valuation.  So if you're selling 5,000 cases annually with ambitions to become a national brand, a value over $5 Million value does not seem unreasonable.  You might also consider a multiple of gross revenue rather than case volume.  Something like 6X gross revenue might be worth considering as a starting point for negotiations, i.e. $1M in sales translating to a $6M valuation.

Of course if your only ambition is to run a successful distillery-giftshop-cocktail lounge in your hometown, your valuation will likely be less dependent on your case volume and growth potential, and more dependent on your profitability and potential to generate dividends in a limited size market.  It would probably be valued more closely with that of a successful local restaurant or bar.

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>Something like 6X gross revenue might be worth considering as a starting point for negotiations, i.e. $1M in sales translating to a $6M valuation.

When I see gross revenue valuations most are between 1x and 3x. Starting at 6x might be a hard sell to someone. Most people want a 3-5 year return of their investment not including stock price increases, at 6x gross revenue that will be tough to do. I'm not saying it's not a place to start, but I would not expect to close near there. 

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> Of course if your only ambition is to run a successful distillery-giftshop-cocktail lounge in your hometown, your valuation will likely be less dependent on your case volume and growth potential, and more dependent on your profitability and potential to generate dividends in a limited size market.  It would probably be valued more closely with that of a successful local restaurant or bar.

Spot on, I totally agree with this. 

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On 11/27/2016 at 5:12 PM, ThreeStacksDist said:

Max Action, I'm curious, where did you get that the sale to Heaven Hill was for $350M? I had always wondered the amount it sold for, and everywhere I look it says it was undisclosed and valuated between $150M-$300M @ 500k cases annually (vs. the 350k you stated). I'm not saying you're wrong, I'm just curious to find out for certain.

That High West sale was something else, wasn't it? Note to self: If ever we make a whiskey we must tailor that use of rye appropriately!! 

I got that $350M figure from one of the prospectuses I mentioned.  I don't have any insider info myself, but perhaps they did.  I don't think the High West deal was that surprising, and not the only headline grabbing acquisition.  I'd be curious to know what prices were had for Aviation Gin and Westland Whiskey.

 

On 11/28/2016 at 9:27 AM, Foreshot said:

>Something like 6X gross revenue might be worth considering as a starting point for negotiations, i.e. $1M in sales translating to a $6M valuation.

When I see gross revenue valuations most are between 1x and 3x. Starting at 6x might be a hard sell to someone. Most people want a 3-5 year return of their investment not including stock price increases, at 6x gross revenue that will be tough to do. I'm not saying it's not a place to start, but I would not expect to close near there. 

Take a look at the valuations of the deals mentioned above and other past and future deals.  Don't forget Ballast Point sold for $1 Billion, or 20x revenue.  Obviously the vast majority of small producers are not going to achieve such success, and many will fail completely, but there's no harm in trying and aiming high.  That's what an investor will be looking for when paying 6X revenue in an early stage company.

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