2021 saw global venture investment in alcohol-related startups rebound to reach $1.25 billion. In this talk from Bar Convent Berlin, Emily Pennington, Sr. Manager of Content and Marketing at Park Street, discusses the motivations that are currently driving investors in the beverage alcohol industry. Pennington breaks down some recent acquisitions in the spirits industry, the types of investors, and current consumer trends.
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When investors are looking to add a beverage alcohol brand to their portfolio, they consider many factors including financial value, category stability, and more. In her presentation at Bar Convent Berlin, Maria Pearman, CPA, Principal at GHJ, focused on investor motivations and how alcohol brands can best position themselves for investment. Pearman touches on the importance of demonstrating a path to profitability and aligning with your potential partner.
If you’re looking to for an investor to acquire your beverage alcohol brand, it’s never too soon to make sure your house is in order. In this talk from Bar Convent Berlin, Alex Oldroyd, Managing Director at Fluxion Advisors, discusses the keys to forming a successful beverage alcohol partnership. Oldroyd reveals the areas in which beverage alcohol brands and their buyers must find a compromise to ensure success.
What’s Driving Beverage Alcohol Investments?
Emily Pennington (00:09)
Welcome everyone, I’m glad you are here this morning. To start off, I’ll share a bit about who I am and why I’m up here. Prior to joining Park Street, I worked as a business journalist covering wine and spirits for eight years for a trade publication called Wine and Spirits Daily. About three years ago, Park Street brought me on to start an entrepreneur education division, as we work with thousands of independent, craft, and emerging brands worldwide. My role on this panel is to provide big-picture industry trends regarding who is buying brands and what motivates them. Following my overview, Alex and Maria will zoom in from a brand owner’s perspective on how emerging startups can best position themselves for raising funds or an eventual sale.
Emily Pennington (01:30)
Looking at the big picture, Crunchbase data tracks total investment in alcohol-related startups (beer, wine, and spirits) from 2016 through 2021. Pre-COVID investment levels in 2018 and 2019 stood around $809 million and $743 million, respectively. Like many sectors, investment came to a halt during 2020, only to rebound sharply in 2021 as global markets reopened, reaching $1.25 billion. Projecting through Q3 of 2022, Crunchbase estimated approximately $570 million invested through October. This indicates total annual alcohol investment for 2022 will likely normalize near pre-COVID levels.
Emily Pennington (03:00)
We primarily focus on three distinct categories of buyers and investors:
- Strategic Multinationals: Global spirits corporations—such as Diageo, Pernod Ricard, and Constellation Brands—that acquire brands to add to their portfolios for long-term growth.
- Private Equity: Firms that deploy investor funds to acquire private companies, gain management control, drive rapid operational improvements, and turn the asset around for a profitable exit within a few years.
- Venture & Seed Funds: Capital deployers focused on smaller, early-stage minority or majority investments. Many operate as corporate venture arms, such as Constellation Ventures, Diageo’s Distill Ventures, or Pronghorn (a venture fund dedicated to black- and minority-owned beverage founders).
Emily Pennington (05:01)
A review of spirits M&A transactions between October 2021 and October 2022 highlights active strategic acquirers like Diageo and Brown-Forman, alongside regional players like Bardstown Bourbon Company and Amber Beverage Group. Notable cross-industry moves also occurred, such as cannabis operator Tilray acquiring Breckenridge Distillery to combine beverage alcohol capabilities with future cannabis expansion. While multinationals historically targeted larger, scaled brands, recent activity shows strategic buyers making earlier, smaller equity investments.
Emily Pennington (07:11)
Four primary M&A drivers and product trends currently define acquisition activity:
- Premiumization: Global consumers continue buying higher-priced products, driving acquirers to buy high-value brands (e.g., Gallo acquiring Tequila Komos; Campari acquiring Howler Head Bourbon) to elevate average portfolio margins.
- Hot Categories: Acquirers quickly fill portfolio gaps by acquiring brands in high-growth segments like tequila, flavored whiskey, and premium gin (e.g., Gin Mare).
- Social Impact Funds: Corporate venture arms continue allocating dedicated capital toward underrepresented founders, women, and diverse entrepreneurs.
- Product Innovation & Differentiation: Acquirers place high value on unique, clear market positioning, such as Pernod Ricard’s investment in Abasolo (a Mexican whiskey).
Emily Pennington (10:01)
Specific consumer purchasing behaviors and market dynamics are also shaping deal structures:
- Category Convergence: Co-branded partnerships and joint ventures between established non-alcoholic and spirits brands (e.g., Coca-Cola and Brown-Forman launching a pre-mixed Jack Daniel’s & Coke RTD).
- Convenience & RTDs: Ready-to-drink (RTD) canned cocktails continue to see high consumer demand for portable, on-the-go occasions at venues, parks, and stadiums.
- E-Commerce & Digital Route-to-Market: Accelerated by COVID-19, brands that have established strong e-commerce execution and direct-to-consumer digital capabilities command significant strategic value.
Thank you!
How Alcohol Brands Can Position Themselves for Investment
Maria Pearman (00:09)
My name is Maria Pearman. I am a CPA and Principal at GHJ, an accounting firm headquartered in Los Angeles, where I lead our beverage alcohol division. I have spent 15 years specializing exclusively in the financial aspects of beer, spirits, and wine, frequently advising companies navigating mergers and acquisitions. When evaluating what drives M&A deals in the spirits space, financial value creation is paramount. An acquiring company looks for target brands that will be immediately accretive to its enterprise value. This value can stem from:
- Bargain Purchases: Acquiring distressed assets or purchasing from motivated sellers below fair market value, where the buyer can restructure and restore the brand to health.
- Strong Cash Flow & Liquidity: A fast cash conversion cycle paired with strong current liquidity (ability to cover short-term obligations) signals foundational financial health, making a target brand highly attractive.
- Ultra-Premium Price Resilience: Ultra-premium price points have proven highly resilient through economic uncertainty, offering financial stability to an acquirer’s portfolio.
Maria Pearman (03:26)
Beyond baseline financial health, strategic buyers acquire brands to round out their product catalogs and enter new markets:
- Strategic Agility: Large multinational beverage companies struggle to pivot quickly or launch internal innovations. Acquiring smaller, agile craft brands allows them to purchase market agility rather than developing it organically.
- Unique Technical Capabilities: Acquiring distinct, differentiated production processes or proprietary liquid profiles solves “make-versus-buy” decisions for larger corporations.
- Market Entry & Existing Distribution: Overseas companies seeking entry into the US market often acquire domestic brands to leverage their established distributor and retail networks, or to utilize production facilities with excess manufacturing capacity.
- Category Stability: For private equity and institutional funds, beverage alcohol represents a recession-proof asset class that stabilizes broader investment portfolios.
Maria Pearman (07:06)
To position a company for an acquisition, merger, or capital event, founders should implement several key financial practices:
- Align Chart of Accounts: Standardize your chart of accounts to match target buyers’ reporting methods. For example, determine whether excise and alcohol taxes are categorized as Cost of Goods Sold (COGS) or Contra-Revenue in your target market to ensure direct “apples-to-apples” financial comparisons.
- Structure Financial Reporting: Clear financial presentation is vital. Organize operating expenses logically into General & Administrative (G&A) and Sales & Marketing, followed by Net Operating Income, EBITDA adjustments (Interest, Taxes, Depreciation, Amortization), and Net Income. Buyers evaluate Sales & Marketing spend specifically to model revenue upside.
- Gross Margin Granularity: Break out revenue, COGS, and gross margin line-by-line for every individual SKU (e.g., separating gin, vodka, and tequila margins).
Maria Pearman (10:13)
- Audited or Reviewed Financial Statements: Standard M&A diligence requires three years of audited or reviewed financial statements. While a review is the baseline requirement, independent CPA audits provide buyers with maximum assurance that books are accurate, reliable, and complete—significantly accelerating the due diligence timeline.
- Proactive Tax & Corporate Structuring: Evaluate corporate structures and their specific tax implications early. Scrambling at the 11th hour during deal negotiations can lead to severe tax liabilities during wind-down, liquidation, or ongoing operations.
Maria Pearman (12:37)
A robust financial forecast articulates your business plan and vision in concrete numbers, giving potential acquirers a clear roadmap of future upside. While generating multiple years of operating losses is common for growing brands, founders must demonstrate a clear path to profitability. Ideally, present three years of forecasted three-statement financials (Balance Sheet, Income Statement, and Cash Flow Statement), or at minimum a detailed Profit & Loss (P&L) forecast. Ensure the forecast balances top-line revenue growth with health metrics like debt service coverage, working capital, and liquidity. Furthermore, build scenario-based forecasts (e.g., Base Case vs. Growth Case) so prospective partners can evaluate upside under different operational paths.
Maria Pearman (14:29)
In summary, preparing a business for a transaction requires three core steps: clearly understanding the strategic value you bring to a buyer, getting your internal financial house in order with audited records, and presenting a well-modeled, scenario-based financial forecast for the future. Thank you!
The Foundation for Successful Beverage Alcohol Partnerships
Alex Oldroyd (00:09)
My work involves advising smaller spirits companies on how to prepare for sale and helping them execute a successful exit. If a company instead aims to build a multi-generational, family-owned business for the long term, I assist with that as well, though most founders I advise ultimately seek an exit. My background includes nearly 20 years as a sell-side equity analyst evaluating corporate strategies and valuations for institutional investors, followed by a period as an investment banker advising multinational beverage corporations on M&A acquisitions. Through that experience, I identified a significant opportunity to help independent founders properly prepare their businesses well before entering an M&A process. Today, I will address four core topics:
- Operational preparation for an exit
- What strategic buyers look for in a target company
- Key drivers of M&A valuation multiples
- Choosing the right strategic buyer
Alex Oldroyd (01:42)
To ensure a smooth exit, it is never too early to get your house in order. Early structural mistakes are expensive to rectify during a sale process, so reviewing contracts early saves significant value. Founders must exercise rigor across all supplier, distributor, advisor, customer, and employment contracts:
- Value Sharing & Incentive Alignment: Contracts must fairly reward partners for contributing to value creation without granting egregious exit penalties or overreaching claims that dilute founder payout at sale.
- Contract Structure & Change of Control: Contracts must accommodate corporate growth and remain fit for purpose for an acquiring buyer, particularly regarding “change of control” clauses.
- Intellectual Property (IP) Ownership: Full ownership of all brand assets—including liquid recipes, bottle designs, and registered trademarks across key international markets—must be legally unambiguous from day one. I have seen sale processes derailed because founders inadvertently ceded perpetual distribution rights or failed to own their core recipes and IP.
Alex Oldroyd (04:50)
Founders must maintain a tight grip on financial management, detailed forecasting, and commercial data:
- Business Plans & Inventory Laydown: Granular business planning is essential, particularly for aged brown spirits where future sales projections must precisely align with barrel inventory laydown capacity.
- Commercial Data & KPIs: Strategic buyers evaluate detailed commercial performance data to verify genuine consumer traction. Track key performance metrics carefully—including velocity (rate of sale), distribution points, geographic account density, and social engagement.
- Investor Structure & Cash Burn: Early-stage angel capital and family office funding require clear strategic alignment. Institutional venture capital or private equity investors will demand high financial returns and operational control to mitigate their risk. The most effective way to avoid equity dilution and protect value is to manage cash burn tightly, control operating losses, and drive early profitability.
Alex Oldroyd (10:48)
Strategic M&A buyers—typically multinational beverage corporations—evaluate targets against distinct operational priorities:
- Portfolio & SKU Focus: Multinationals rely on scale and volume; they dislike operational complexity. They prioritize core brands with critical mass rather than sprawling portfolios containing unprofitable SKUs.
- Geographic Focus: True brand traction in a few core markets is far more valuable than spreading small inventory volumes across 50 disparate markets. A ideal target demonstrates a dominant domestic position, proven concept in two or three key export markets, and structured seed distribution beyond. Recent acquisitions—such as Brown-Forman acquiring Gin Mare and Diplomático Rum—highlight buyers seeking premium brands with established scale across key European markets.
- Premium Consumer Positioning: Buyers seek premium-and-above positioning within a category, as higher price points deliver greater gross profit per case and higher brand contribution margins (gross profit minus direct marketing spend).
Alex Oldroyd (14:44)
Acquisition valuation multiples—whether measured against case volume, net sales value (NSV), or brand contribution—reflect a company’s underlying discounted cash flow (DCF). The primary valuation drivers include:
- Quality of Growth: Buyers prioritize organic velocity and repeat consumer demand over artificial trade pipeline stuffing.
- Scalability & Scale Thresholds: Multinationals require brands that fit efficiently onto their global distribution platforms. Recently, major buyers have shown a preference for slightly larger, more established targets to avoid the integration friction associated with early-stage micro-acquisitions.
- Capital Intensity: For brown spirits, laid-down aging inventory represents clear balance sheet value. Conversely, buyers penalize uncompleted capital expenditure projects due to cost overrun risks.
Alex Oldroyd (18:31)
Selling a controlling stake means surrendering operational control, requiring founders to adapt to corporate governance. Staged acquisitions—where a founder remains post-sale under an earn-out structure—are common in the spirits industry. When negotiating earn-outs, ensure financial targets are realistic based on your actual business model; failing to achieve earn-out metrics directly forfeits deal value. Furthermore, while joining a multinational’s route-to-market platform expands reach, your brand will compete internally for distributor attention against established portfolio brands. Securing an internal executive sponsor within the buyer’s organization is vital to driving post-acquisition focus and success. Overall, despite broader market volatility, multinational buyers remain well-capitalized with a strong appetite for exceptional, scaled independent brands. Thank you!
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