Brewbound Frontlines: Private Equity’s Influence in Craft Brewing and the State of M&A

Justin Kendall [00:14] Hey everyone. Welcome back to Brewbound Frontlines, our live stream check-in with beer industry leaders on the moves they're making. I am Justin Kendall, the editor of Brewbound, and I'm joined today on this socially distant social hour by my colleague Justin Fonte. Jess, how are you doing?

Speaker 2 [00:32] I'm good, Justin. How are you?

Justin Kendall [00:35] I'm all right. Uh, I'm excited that we're going to talk a lot about investment, private equity investments. How could you not be excited?

Speaker 2 [00:44] I'm pumped.

Justin Kendall [00:46] I know you are, and so is everyone out there. Uh, we brought together a slate of dealmakers to discuss the influence of private equity capital on the craft brewing industry, as well as take a look at the current state of M&A activity, that is a lot of A's to say in the craft brewing space. Joining us today are Craig Farley, the managing director of Farley, Turner and Company. Craig, what is up?

Speaker 3 [01:15] How are you doing, Justin? Good to see you.

Justin Kendall [01:16] I'm well. Uh, I'm in a very wood paneled room. I just realized that. Uh, also joining us today is Townsend Ziebel, the managing director of investment banking for Cowen and Company. Thank you for being here, Townsend.

Speaker 4 [01:33] Glad I could join.

Justin Kendall [01:35] We're always happy to have you here. We're also pleased to join to have joining us Nicole Nugent Fry, the managing director of Cascadia Capital. Thanks for being here, Nicole.

Speaker 5 [01:47] Thanks, Justin. Thanks for having me.

Justin Kendall [01:49] And last but not least, joining us is Ryan Lake, the principal of Arlington Capital Advisors. What's up, Brian? How you doing? I'm well. So, if you're watching from home and you have a question, text us at 617-336-8560. That number again is 617-336-8560. We've already got a question in the queue, so we're pretty excited about that. And before we get going with today's show, a few housekeeping notes. We'll be taking a week off from Frontlines next week as we prepare for our next Brew Tas meet-up event. So, no front lines next week. We will return though on August 27th with two big panels for Brew talks. It's a virtual meetup presented by Dogfish Head. So joining us in those conversations will be the leaders of the three major trade organizations in beer. That's Craig Purser of the NBWA, Bob Pease of the Brewers Association, and Jim McGreevy of the Beer Institute. They will be here to discuss the impact of COVID-19 over the last six months on the brewing industry, as well as the path forward, which includes excise tax relief. We'll also take a look at what the next normal looks like. We'll be chatting with Dogfish Head founder Sam Calionei, Russian River co-owner, Natalie Cruzzo, Hopewell Brewing co-founder Samantha Lee, and Green Bench Brewing co-owner, Chris Johnson. They'll be here and they will tell us what the last few months have looked like for them and how, I guess, what the path forward is gonna be for them as well. We got one more plug for you. Uh, I'm gonna turn it over to Jess for that.

Speaker 2 [03:43] Sure. So, finally, uh, as we've mentioned to you guys for a few weeks now, Brewbound is moving to a subscription-based model. COVID-19 has been really tough for just about everybody, uh, nationwide from industry to industry, but including our parent company, Bevnet. So by the end of this month, we're gonna be moving to this paid subscriber model, and we really hope you're gonna come along with us for the ride. You can certainly find out more details on Brewbound.com.

Justin Kendall [04:07] She's very smooth at this, I am not, but we need to get going with today's conversation. Over the last 5 years and possibly a little longer than that, private equity money has flowed in the craft brewing industry. The list of recipients is long, I won't go through it, but, you know, you can look down the list and or search Brewbounce archives and read all about it. The dollars, they add up in hundreds of millions, if not billions. So let's start off very generally. Where would the craft brewing industry be without the injection of capital from private equity, and I'll start with Nicole.

Speaker 5 [04:46] Thanks, Justin. Um, you know, you're right. I mean, the, the private equity money started flowing into the industry sort of in the 2014 to 2016 time frame in earnest. Um, you know, that capital provided owners with liquidity but as importantly provided people with the ability Ability to build out their breweries, their infrastructure, their sales organizations at a time when the industry was growing rapidly and the rising tide was, was lifting all boats. Um, so I, I think it definitely contributed and helped to the growth of the industry. Um, you know, the flip side of that is that as the industry slowed, Um, you know, you then had several assets that had, um, you know, investors in them that, you know, needed liquidity themselves, um, or were forced into, um, you know, situations where they had to look at alternatives that perhaps not the right time. Um, so I, I think that's caused some, you know, issues internally at some of those businesses that do have private equity ownership structures, um, but I do think, you know, it did provide during the growth period, um, an avenue for a lot of small brewers to join, um, you know, for example, in Karchy, join a broader portfolio. and a bigger team and bigger resources and definitely, you know, fueled a lot of growth in the industry, but I think once the industry goes slowed, um, you know, it has caused some pain points for some of the breweries that took that capital and are now having to look at ways to, you know, provide those investors with liquidity because that any private equity investor is looking to eventually exit that investment and typically, you know, 35 or 7 years.

Justin Kendall [06:23] Townsend, when you look at the influence of private equity money on craft brewing, how do you view that? How do we, how do we look back on what we've seen over the last 6 years?

Speaker 4 [06:37] Oh, I, I think when we started uh doing transactions in the, in the industry, private equity had a, a bit of a pejorative uh reputation. I think people didn't understand it and we're a little bit distrustful of it. But private equity, you know, if invested appropriately with the right structure can be very good for a company. It can provide liquidity to shareholders, it can provide capital for growth, and for some founders, it can provide a, a second bite at the apple. I, I, I think The issue and Nicole hit on it is, um, most of these investments were done during a period of very high valuations, and the private equity firms were competing with strategic buyers with synergies. Private equity firms don't have synergies, so the way they offset that is they, they, they, they use structure. And structure means typically a preferred stock that sits on top of the founder. And that allows them to stretch on value. That's good for the upfront capital that's taken out of the business. And it may or may not be good for the back end. Uh, and what happened is, you know, these investments were, were underwritten with a business plan that was done in 2014, 2015, 202016. It had double-digit growth. And the reality is the industry slowed and company growth slowed, and all of a sudden, The equity value for the founders and, and their employees, was, would, would effectively be squeezed because the company wasn't growing its total enterprise value, which means the value of the whole firm before debt, was flatted down, and these preferred stocks that were used in some but not all cases continued to grow and the equity value got squeezed. So, I think it's, you know, history. has not been written yet, but I think, you know, there'll be some deals that'll be just fine. But there'll be many deals that will not be, not be done, and not turn out that well, simply because they were, they were underwritten at a time when growth was expected to be quite high and the reality turned out to be different.

Justin Kendall [08:29] Ryan, when you look at what we've been able to accomplish within the craft brewing industry over the last 5 or 6 years, what it's grown to more than 8000 craft breweries, the size of what the top 10 craft breweries have become, how possible would some of this growth have been or how would this have been possible for a lot of these larger companies without these investments?

Speaker 6 [08:55] Possibly, yes, for some, but it would have taken on probably more debt to do it or to grow more slowly into this. Um, so I think the Towns and Nicole's point, you know, private equity can allow you to grow faster than you normally could, or to do it without taking on so much debt, um, which itself can reduce risk. So, I mean, I think, you know, obviously, 8000, 8500 plus breweries, the vast, vast majority have not taken on private equity investors and are very small and are doing just fine, but a lot of big ones, yeah, I think private equity helped them grow a lot.

Justin Kendall [09:22] Craig, when you look back at the 5 years, how do you reflect on its influence on the industry?

Speaker 3 [09:28] So, you know, what I would say, Justin, is that, you know, private equity is not a force for either good or evil. I mean, and it's hard to paint things with any one brush. Um, I think we could all point out some very good private equity deals, and we could probably point out some private equity deals that people wish didn't happen, but, you know, the fact of the matter is, is, uh, brewing is very capital intensive business, and so, you know, if you want to scale up your business. You're gonna need money, and the money can come from three places. It can come from the existing business, it can come from a lender, or it can come from an outside force. And if it's out, if it's an outside party, it's either gonna be private equity, it's gonna be a strategic, or it could be a family office, uh, you know, which are a little bit fewer and further between. So, I think for the industry to grow the way it has, you know, it necessitated the need for private equity capital, and, and, you know, I think we could all point to Deals with strategics that have gone well, and, and some that haven't gone as well, and deals with private equity that have gone well, some that haven't gone as well. So, I, I just look at it as a tool. I, I, I, it's a tool to help grow the industry. Um, and some people have used it better than others, and some deals have been more successful than others, but I, I don't, I don't judge it with any, uh, you know, it, it's been a great positive or a great negative. I, it's just a, a way to finance the growth of the industry.

Speaker 2 [10:49] OK, so for somebody who's watching at home and maybe doesn't quite understand exactly how private equity works, um, Ryan, can you help us, um, really kind of understand on a, on a base level, what is a typical private equity investment in a craft brewery look like and how does it go down?

Speaker 6 [11:04] Yeah, it can take different shapes and forms, um, like Townsend said a minute ago. I mean, a lot of times it comes in as preferred equity, which is basically Equity that sits in the cap table above the common shareholders, which is usually the founders, friends and family, and it usually has some sort of structure to it. They get some sort of, of downside protection on their return or some sort of guaranteed upside. Um, so it's equity, it comes in as cash, it doesn't usually come in as debt. Um, so you don't, you don't get the potential risk of having debt and having the potential default on that, um, but it usually has some protections that the original founders and investors don't get.

Speaker 2 [11:39] Interesting. I mean, Townsend, do you have anything to add to that?

Speaker 4 [11:43] Um, no, just that typically, not always. I think in the beer industry in particular, where the founders, um, are so critical to the business, um, private equity doesn't buy 100% of the business, it can, uh, but often, um, it leaves residual equity for the founders or the founders of role equity. Um, they're very focused on alignment of interest. Um, so, that's a, that's a feature that I think is, uh, not unique, but very common in craft beer.

Speaker 2 [12:13] So Nicole, what are the advantages of this type of investment compared to other investments?

Speaker 5 [12:19] Um, look, I think, I mean, the, the advantages are, I mean, to Ryan's point, it, it, it doesn't come in as debt, um, so you're likely to have less sort of quarterly or monthly covenants which you would have under a debt structure. All that being said, if a private equity firm comes in and buys control, they, they may determine to put debt on the business, so they're, they're not necessarily mutually. Exclusive, but again, it's equity capital for growth. The other thing is if the capital comes in and goes into the business versus going out to shareholders, it's less diluted because they will value that on a post-money basis, so it can be less dilutive to your business, um, if you're really putting in the capital for growth. But I think, I mean, the point is people just. have to go in eyes wide open and understand all the bells and whistles that go in that we, we talked about preferred structures. There's also a lot of governance and, and people have to know even if someone's a minority shareholder, they're gonna have approval rights over major decisions um with the business, how much you can spend on CapEx, how much, you know, what you can do with your management team. Um, you know, what you can do with respect to taking on debt, um, you know, distributing dividends to shareholders. There's a lot of, um, you know, someone's not just gonna write you a check and, and say good luck. So, you know, you have to understand going in that there's a lot of, uh, uh, governance rights, um, as well as preferred structures that come in, um, and not to give us all a plug, but I think that's where, um, you know, an advisor that's looked at a lot of these can be, can be very helpful.

Speaker 2 [13:48] Craig, what would you say are some of the biggest risks when taking on investments like this?

Speaker 3 [13:52] So I, I think it's, you know, the same risk that you would take on anytime you bring in a new partner into your business. So, you know, as Nicole said, some of these deals are done as minority investments and some of them are done as majority. Majority investments as Towns Townsend indicated, they're rarely 100% buyouts like you would see with the strategic. So, you know, anytime you bring in a partner to any business, you're gonna have risk. And, and so, you know, you have to do as much diligence upfront as you can on who are they. Talk to other investments that they've worked with, talk to other business owners that they've worked with to figure out how do they, how do they interact with CEOs, how much, how much rope do they give you. Um, you know, where, what, what do they really care about? What kind of reports do they like to see on a regular basis? Are they really board members or are they really down in the weeds? And so, you know, just do your diligence going in and then make sure that you get the right kind of structure. So we're a little bit all over the map, you know, this afternoon talking about minority, majority, you know, strategic deals, but. But the reality is, um, you know, sometimes you have preferred structure, but we've been able to negotiate common share structures of people coming in with the same alignment and the same exact shares as the private equity firms. So it, it just depends on the particular deal, and it's hard again to paint this all with one broad brush.

Justin Kendall [15:11] That's, that's probably a great point to when we're looking at this, because, you know, I, I would ask you, you know, how, how does a brewery owner, or what are the things that a brewery owner really needs to consider when taking on this type of investment or exploring it, and it, like you said, you can't paint it all with one broad brush. So, I guess, Trying to look at it from a very general way. How, how should, you know, brewery investors approach this? And, and I guess I'll throw that to, to, uh, our brewery owners approach this, and I'll throw that to Townsend and just say, you know, uh what are some of the factors that they should be considering, just kind of jumping off of what Craig just said.

Speaker 4 [15:58] Well, um, one thing we should probably mention is that, that uh traditional private equity, um, are funds that are investing monies on behalf of pensions and endowments. Um, and they're looking for typically scale and profitability. So, uh, I, I would say a vast majority of the 8000 craft brewers probably aren't ideal, um, candidates for private equity. Um, so we should probably keep that in mind. Um, but, uh, for those that are, uh, I think Nicole said it, your, your eyes need to be wide open. I, I, I think entrepreneurs tend to have an optimistic view of the future. And, um, I think you should, um, when you take on private equity, you know, you should be mindful of, um, the risk of downside performance. Um, you should be eyes wide open that you have another voice in the room. Um, and, um, you know, if there is leverage involved, which there often is, um, you know, that just puts more strain on the business. So, I, I think it's just transparency. Um, I'd also say, you know, uh, very hard to do, but I mean, forget the math. Um, you know, do you see Sync up and you get along and, and do you feel like they could be a good partner for you at a personal level. Now, you know, somebody can leave the next day, so that's always a risk in picking a partner. But I, I think you need to make sure that they understand your culture and, and, and that you are culturally aligned. Um, but again, if things go badly or sideways, um, you know, those alignments can change.

Justin Kendall [17:23] Townsend mentioned that, you know, a lot of craft breweries aren't gonna fit the profile of what investors are looking for. So Ryan, when you're talking to investors out there in this space, what are they looking for in a potential investment?

Speaker 6 [17:38] I mean, I think right now, I mean, investors are always, uh, super selective about what they get into because, you know, capital is, is valuable and it's scarce, and they wanna make sure they're investing in the right ways for their, for their own LPs and their investor base and their funds, um, but they're more selective now than they ever have been. I mean, I think even in crappy right now, even the ones that are getting conversations are the cream of the cream of the crop of craft brewers. Um, You know, ones that have proven that they can weather COVID, uh, maybe even excel during it in some ways, um, ones that have proven they have an, an agile management team that can adapt to new environments and, and new challenges that might be changing weekly or daily. Um, they're just very selective right now about looking for really good brands, really good management teams, and, you know, significant upside.

Justin Kendall [18:25] That seems to, when, when you look at the landscape of, you know, who's taken an investment or who's done another type of deal, it seems like there would be a lot of players that have already been taken, taken off the board. Uh, is that the case, what, from what we're seeing out there, Nicole?

Speaker 5 [18:45] Um, you know, I don't think so necessarily. I mean, I, I think there's still several, you know, if you, if you scan through the BA list of the top, you know, 50 to, you know, maybe even up to 100, um, I do think some of the smaller ones that are more tightly geographically focused can be more profitable. Um, so I do think there are several that still remain independent or have an equity investor in there that, you know, could be looking for a new investor. Um, so I definitely think there's still opportunities, but, uh, it's gonna be, you know, as Ryan mentioned, the investors are gonna be highly selective, and I think, you know, at the end of the day, the, the story that's gonna sell the best to a private equity investor is going to be someone that is not just trying to get out quick and has a short-term view, um, and wants really the majority of the capital for liquidity. I think it's really gonna be a story about someone that comes in. And wants a partner for growth to sort of weather through this cycle and has a really clearly defined strategy, um, and it's OK staying for, you know, 357 years, um, to grow along with that partner.

Justin Kendall [19:49] Craig, when we're talking about some of the characteristics of what makes a, a potential good target for investment, you know, we look at like off-premise chain distribution, wholesaler alignment, volume size, what, what are some of the most important characteristics out there to investors right now?

Speaker 3 [20:09] Yeah, so, uh, I think we've touched on a lot of them, Justin, but what I would say is, you know, growth is probably number one. You know, private equity firms by and large, don't make money by cost cutting. It contrary to popular belief in what you might read in the, in the, in the press. Private equity groups make money by growing businesses, and so they're looking for growth. They're looking for companies that have performed during COVID. So Ryan touched on that, but I think it's really important to the extent that your business has done well and accelerated. Um, I think that's a positive, you know, they're looking for a vision. Um, I, I don't know that private equity is necessarily looking at distributor alignment because unless they already own, you know, other assets in the place in which you're more like an add-on or, or a tuck-in rather than a platform, um, acquisition. But, uh, you know, they're, they're looking at, at, also, you know, I would, I would say size, and that if you're not, Say $10 million in revenue or more and, and have, you know, legitimate EBITDA, you know, earnings before interest, taxes, and depreciation of, of at least a couple of $3 million somewhere in that neighborhood, you're just gonna be too small for most private equity firms to, to, to bother looking at. So, you know, it's some combination of those, just in size, uh, ambition, management team, and above all, growth.

Justin Kendall [21:31] What would you say is the ideal volume size, or is there like a cutoff point barrelage wise that you would say is, is sort of on the cusp?

Speaker 3 [21:42] I mean, for me, I'd say it's probably 20,000, 25,000 barrels is where it starts to get interesting for private equity firms. Below that, I think you're just either too small or, or, you know, just not, not profitable enough or, um, you know, just not to scale yet. Now, that, that could change if, if it's again, someone that's consolidating that is looking for an asset in a particular situation, but I think when you get below the 20,000 barrel mark, it's just, it, there's not enough scale there for private equity to make, to make the numbers work.

Speaker 2 [22:12] Craig, this might be a silly question, but is there such a thing as a brewery that's too big?

Speaker 3 [22:18] No, yeah, no, I, I, I, I really, you know, I, I look at that in general and say, you know, uh, look, some of the largest breweries in the world have, have private equity money into them, so there, there really is, uh, I think there are public companies that are too small, but there's no such thing as a deal that is too big for private equity.

Speaker 2 [22:39] Thank you. That's really interesting. So, we know everything has been really turned upside down by the global pandemic, particularly in the beer industry. So in an industry that's in flux so much the way it is at the moment, is the timing right for more private equity investments, or is there a lack of interest right now because everything is so crazy? Brian, why don't we start with you?

Speaker 6 [22:59] Yeah, I would say just in the past few weeks, we've started to, to feel more calls from private equity asking about the craft beer business, which is sort of interesting because it's been very quiet for the past couple of years. Um, but I do think there is a subset of the private equity universe that, that senses that there could be some really good assets, especially as, as the craft beer, the shakeout that's starting really goes through its, its full cycle, and I think, I think there was a shakeout brewing for the past 3 or 4 years, and I think it was gonna come no matter what, and COVID just accelerated that by Months if not years. Um, and so I think there's some smart private equity they're sensing that there are gonna be some really good brands that will be the survivors of this and will be positioned to thrive after COVID, after unfortunately, a lot of their peers don't exist anymore. Um, so we're getting, we're getting a few more calls every week now from private equity asking about the craft beer landscape.

Speaker 2 [23:48] Uh, Nicole, I remember, uh, you spoke on stage at Brew Ball Live back in December, and we, you know, you said a lot of the things that, that Ryan just said, how it's been slowing down a little bit over the past few years, but, I mean, what do you think right now? Is the timing right?

Speaker 5 [24:01] Yeah, I think, you know, I think private equity is putting up its head and for all the reasons Ryan outlined, um, you know, but it's, it's not going to be, you know, the, the dozens and dozens of funds that we're aggressively looking at this sector, you know, several years ago. I still think it's going to be a smaller universe of private equity funds, but there are also a lot of funds that lost out on deals and did a lot of due diligence and a lot of work on the sector. Um, the sector does throw off cash flow and EBITDA very early. Um, and so I do think there will be, there definitely will be interest. Um, there are people that are sort of poking out around as their capacity plays, but I also think they're going to be very cautious on value. Um, and so the expectation that multiples or even near where they were. Um, several years ago, it's just not the case. So, I, I do think we're seeing more interest, but it's gonna be highly selective and at, at, at, you know, at valuations that are more in line with traditional CPG businesses which are, you know, maybe 8 to 10 times um versus where they were several years ago, which was, you know, 12 to 15 and, and higher for some of the, you know, the ballast point, uh, initial deals of the world.

Speaker 2 [25:11] Townsend, does this, uh, kind of jive with what you and your team are starting to hear too?

Speaker 4 [25:15] You know, I think the level of interest from private equity is still um low and guarded at the moment. Just, I mean, it was even before COVID because of the uh decline in industry growth and what, as Greg said, is a capital intensive. Business. But um, I, I would make an argument today is, uh, you know, as soon as we get kind of COVID behind us, is the, is, is the perfect time for private equity to enter the the industry. You know, uh, we talked about the sources of capital, one is debt. Lenders have pulled back in terms of their interest in lending into the sector. Um, the second would be strategic buyers. Um, you know, the strategic buyers have pulled back. Many have, have gotten their fill in terms of their portfolio. You know, others are guarded and others are distracted. Um, uh, you know, so, uh, and the evaluations, which I think, uh, potentially were problematic for some of the private equity deals were done, as Nicole said, should, should, should be at more, you know, I, I think more, uh, conservative levels. Um, so, and And also craft on craft, which has been talked about a lot. It's, you know, very difficult to do because of negative excise tax energy. So, there, there, there, there, I think the industry needs a, a, a capital source and it, and it could, and can be private equity. Um, so, um, because I, I just think there's, you know, not all the brewers that would like to either raise capital for growth or um seek some form of liquidity event are gonna find an option. So, I, I think, I think it's actually a really good time, but, um, you know, we'll see what happens.

Speaker 2 [26:48] Craig, what are you hearing? interest about the same? Yeah,

Speaker 3 [26:52] we're hearing a little bit, a little bit of the same, you know, um, I, I, I think the private equity firms that we're talking to basically have fallen into two categories, some that are curious about the industry that are, that are, you know, just now looking at it as maybe, maybe there's some damaged assets or, or some companies that have gone through, you know, turbulence. That, that they can pick up at the right price. But, you know, there are people who, uh, you know, either missed out on opportunities before or like the industry but didn't, didn't feel comfortable at 12 to 15 or 16 times EBITD and, and, but at, at traditional CPG multiples, you know, I think that the industry looks a lot brighter. So, you know, uh, again, I think it really depends on, on performance, you know, if, if you're not talking to Uh, private equity firms that are, that are turnaround specialists, but you're talking to private equity firms that are investing in, in thriving, growing companies, it's all gonna come down to how has, how has the brewery been growing and how did it do the last several months, you know. Was it able to separate itself from the pack? Because to me, we're in a time right now where you can really distinguish yourself in craft beer. So there, there have been periods where, you know, a rising tide lifts all boats, but we're not in a period of a rising tide anymore. We're in a period of, you know, real separation of performance.

Justin Kendall [28:15] Townsend, uh, I wanna say it was 2 years ago that I saw you on stage at our friend Harry Schumacher's conference and you had said something that has sort of stuck with me since that moment, which is, there's a lot of PE money out there that's gonna need to unwind in the next few years. And I, I think that for a lot of these investments, we are at that 5-year mark, um, maybe some were probably closer to the 4, 4-year mark. But The money is there. The timeline is, it's come due. So how does this money unwind? Um, how do these exit strategies play out, or are we in a period where things have been paused because of COVID-19?

Speaker 4 [29:05] Uh, well, yeah, we, we didn't talk about that at the beginning, but there is still a significant amount of private equity that has to, has to exit. Um, and I, I think it will be challenging. I think certain, um, uh, private equity, uh, Investors are, are, are truly funds, which have a, a period by which they have to unwind their investments, typically 5 to 7 years, 10 years at, at a max. Um, that's gonna put a lot of pressure on some of these uh investors to, to exit. Um, several others are family offices, um, and Craig mentioned this, there's a distinction. Family offices don't have the, the, the, the pressure um to exit that uh traditional private equity funds do. But it's a great question. I mean, I think, I think many of these investments were predicated on the assumption that there would be a strategic buyer, um, that would take them out at, uh, you know, at least equal to or higher than the multiple they invested in. And I think we've talked about it a little bit, but the strategic buyer set is very guarded and very thin right now. So, um, I, I think it's a real, I think it's gonna be a real challenge. Um, I think you'll need either some international buyers to come into the arena, um, or, um, you know, you You may end up with a sponsor to sponsor sale, which means, you know, a private equity firm is effectively selling the company to another private equity firm. But um, I, I do believe that there's gonna be pressure on the market, you know, I, I think most of these deals are in the 7th, 8th, or 9th inning. Um, so, uh, I, I don't have a, I don't have a great crystal ball, but I think, I think it will be problematic for many.

Justin Kendall [30:34] Nicole, do you see us at the end of the line here for some of these investments that we're gonna have to see an exit here very shortly?

Speaker 5 [30:43] Um, you know, I, I know there are many that are thinking about it or have, have tried it and, and not successfully, so that's that, I mean, Tos is right, we're at the end of the inning for some of these, uh, investments that were made 345 years ago. Um, um, but, you know, can they get out is the question. Um, do they have a little more runway internally to try to execute on a growth plan and survive this downturn, and I think some do and are thinking through strategies to position themselves for an exit down the road. Um, and then the other question is what's happening with their lenders. A lot of these businesses are levered. Um, their EBITDA is falling, they're breaking covenants, and what's, and that, you know, that can force something, um, at a value or a situation that's less than perfect. So I, I do think we will see sponsor to sponsor deals as a result. Um, I think the strategic interest in some of these larger assets, particularly with diversified portfolios and mixed distributor networks, is, is going to be very challenging.

Justin Kendall [31:40] Ryan, uh, I, I guess jumping off of what Townsend and Nicole just said, are we on the verge of a, a very busy deal-making period, or, or is it gonna be a challenge to get this money unwound or unbound?

Speaker 6 [31:55] Well, I mean, to caveat first, I mean, Arlington has done several notable private equity deals and crafts. I'm not talking about any particular client or transaction here, but, yeah, I mean, there is a definitive time horizon for these private equity funds, especially if you're a traditionally structured fund. Um, but I think this kind of goes back to what Craig said earlier, like, picking a partner is, is so important at the front end. Um, You know, everyone's money is the same color of green, and you could have two private equity firms that structure a deal in the exact same way, but if you've got one that understands the industry, understands consumer products, and one that doesn't, what they might do when you get towards the end of the investment horizon might be substantial. different. Um, so I think, you know, having the right partner from the outset makes these sort of decisions later on, usually more productive if you've got a good partner in there who's willing to help figure out the path forward when maybe the original exit isn't so simple anymore.

Justin Kendall [32:46] Craig, how do you see these exits playing out over the next few years?

Speaker 3 [32:50] You know, I, I do think there will be challenges, Justin, because, you know, in contrast to the market that we were in, say, 345 years ago, where there were more buyers than sellers, we're in a market right now where there's more sellers than buyers, by and large. And, and so, you know, uh, I mean, at the risk of maybe Airing a little dirty secret is, you know, it's a relatively thin market for, for buyers right now. Like, like, you know, or, or, excuse me, for sellers. There, there's just not that many, the strategic interest as Townsend was talking about earlier, you know, a lot of the overseas guys are distracted or, um, you know, just not interested in seeing what's going on, and, and a lot of the big strategics here have, have made bets already. And so, you know, it's not like there's, you know, hundreds of potential strategic buyers for a business. There's a subset of, of, of buyers, and, and so I, I think that, um, you know, there are some challenges, but again, it's gonna depend on performance. If it's, it doesn't matter if a company is owned by private equity or a family office, or, you know, any other form or, or by individuals. If it's performing and uh You know, and growing, it's gonna be valued properly and, and, and properly, you know, is what we're talking about that, you know, high single digits, low double digits, EBITDA, and, and with, with potential to pro to possibly be higher depending on, on, you know, very, very large scale. Um,

Justin Kendall [34:18] does a gulf exist between what I guess some of these investors believe that their investment is worth and what the, the market actually says that they're worth.

Speaker 3 [34:29] I think some of them may have have gone in with, uh, you know, and, and maybe slightly overleveraged right now. So I, you know, I mean, to me that's maybe the biggest problem is that, you know, to the extent that most of the purchase price is taken up repaying debt, there's not a lot left over for the equity owners, so there, there's not a huge incentive for them to do something other than, other than they need to because of timing. But, you know, there, there is gonna be a gap in between valuation, expectations and reality.

Justin Kendall [34:56] I is that sort of across the board? Does everybody sort of believe that that's kind of where we're at, and I, I guess I'll throw that to Townsend.

Speaker 4 [35:05] You know, uh, setting valuation expectations is one of the most important jobs a banker has, um, because if you don't have realistic valuation expectations, it usually ends up badly. Um, I would say it's actually the entrepreneurs, um, that the founders that have, uh, have hung on to. You know, inflated or higher valuation expectations than the market is bearing. Um, private equity firms are professional investors. Um, I think they understand where the market is, um, and they're pragmatic. Um, and some of the deals probably will require some structural creativity. Uh, to get out of. But, um, uh, I, I, I, I think, I think the private equity guys are, are, are, are more mindful of where the market is and have realistic expectations. The problem is, um, those realities may not generate the returns that they expected when they put the money to work. And they're, they'rein is the, the, is the issue for some of the deals.

Justin Kendall [36:00] With uh uh uh a lot of sellers, I guess, out there, potentially. Is there, um, I, I guess, on that side of the equation, Ryan, is there, um, uh, an inflated view of what their assets are worth?

Speaker 6 [36:17] Um, I mean, I think, depending on the, on the craft brewery owner, there's been inflated expectations for a few years for some of them. Um, I think, you know, it's, it's easy to read the headline numbers, especially back in the, the real boom times of 15 and 2016, maybe 17, and you would see the crazy per barrel multiples, and everyone would look at their barrel age and try to, try to say what they thought they were worth in the back of their mind. Um, you know, the reality is there was usually more complicated dynamics as to why certain breweries got Very high multiples or whatever everyone assumed are very high multiples. Um, and I think it's, it's tough if you're a, if you're a business owner that, especially if you founded it and you've grown it to a certain point, you know, it's natural to think that it's worth a certain amount of money. Um, and maybe in the market, it is, maybe it's worth more than that, but maybe it's not. And I think it's a, I think it's a tough psychological, emotional thing to face if you've, you've built something up from the, from scratch, um, and maybe it's not worth what you hoped it would be.

Speaker 2 [37:11] So Nicole, what would you say a happy ending looks like for investors and the founder? How, how does this situation resolve successfully with everybody being satisfied with it?

Speaker 5 [37:21] Um, I, I think, you know, I think it's a situation where, you know, an investor comes in and, um, you know, again, the capital comes into the business, maybe the the founder, um, or, you know, management team gets some liquidity off the table with the initial investment. But is aligned with their partner for a, for a successful growth and measured growth strategy. Um, and in 3 to 5 years, they have an exit whether it be to a strategic or another private equity fund where they make more on that second bite at the apple than they did at the first. Um, so, and I also think in this environment, um, people have to be very mindful of bringing on an equity partner that's gonna over lever the business and strain the business. Um, and that may come at the cost of some valuation, but you know, you've seen there are a handful of examples out there of where the banks have taken over the, the company, um, or are going to force a sale. So I think in this environment, people, you know, if you're doing a majority deal with an equity firm, you have to be very mindful of the potential leverage they want to put on the business so that you have the flexibility and the capability to execute a growth plan.

Speaker 2 [38:28] Thanks, Craig. Does that all sound right to you as well? How often do founders stick around, or do they usually?

Speaker 3 [38:34] I think with private equity firms, Jess, founders almost always stick around. In other words, a private equity firm, you know, in general does not want to run the business day to day. So it's often a great bet for someone who wants to stick around, continue to oversee the day to day operations of the business, take some cash off the table, and also have some cash available to grow their business. Um, to me, you know, uh, uh, I, I, I'd pick up on two comments. Townsend said that, you know, um, one of our jobs is really to, to guide our clients on evaluation. That's totally true. I would bet if you were to focus the, the panel here on any individual brewery and ask us to perform evaluation, we'd all be within 5 to 10% of each other. So, you know, our job is to know what the market is and, and who's out there in the market. Um, and a brewer's job is, is, you know, to make the best beer possible and, and to grow that and to realize their ambitions. So, I mean, to me, a, a happy ending includes, of course, having an advisor who can help you navigate those waters because it's really complex and, and, you know, as you've heard. all these terms thrown around and, and all the various forms of capital out there. It's helpful to have someone who can sit side by side with you and say, look, here's, let's segregate these and let's look at them all and let's talk about the positives and negatives of each one because they each have different implications for your dream.

Speaker 2 [39:55] Thanks. I mean, I think this is um a friendly reminder if you're watching at home and you have a question for these guys. We've got quite a few in the queue. You can text it to 617-336-8560. Um, question for you guys that would dovetail with the conversation that we were happening before we went live. Um, somebody in the audience would love to hear your perspectives on M&A and the hard seltzer space. So right now, we've seen quite a few very large national brands launch hard seltzer offerings, and there's quite a few, uh, smaller craft homegrown regional brands. So, so how do you guys see this playing out over the next few months and years? Ryan, why don't we start with you?

Speaker 6 [40:32] Yeah, I mean, I think it's, it's similar to, you know, doing a deal anywhere in the beverage space. I mean, if you have a differentiated brand, If you have some sort of velocity that's really attractive to acquirers, if you've proven that you've got relevance with some geography or some consumer set, um, yeah, then you, you can be attractive to an acquirer, I think, you know, there hasn't been many deals so far in Seltzer. There's been two, I think, that are known. Um, one's minority investment. A lot of the brands have been innovated internally, but naturally, there's gonna be some acquisitions there too. They're gonna be some, some, you know, self-created brands that really become interesting and get acquired.

Justin Kendall [41:09] Nicole, we were discussing yesterday, uh, we had a pre-call, not to break the fourth wall here, but you'd mentioned that the conversations that you're having now are, are more targeted discussions. Can you explain a little bit of, you know, how the way that, you know, deal-making has sort of shifted in this COVID period?

Speaker 5 [41:30] Yeah, I know, and I think it, it really goes to the, the buyer pool today and, and we talked about this earlier. I mean, it's a print, it is a pretty thin set, um, you know, both strategic and financial, um, and so, you know, back in the heyday, we would, you know, if we knew a brand or a brewery was attractive, we would gear up the machine and put together a book and a model and, and market it out to, to everyone. And um you know, that's just not, it's not efficient or effective way to do things in this environment. Um, perhaps with a handful of exceptions. So what we're doing more frequently is having targeted conversations, um, in advance of a process to say, you know, with this profile and this geography and this size, would this be of interest to make sure we have enough interest from the buyer or investor universe before really broadly marketing a transaction. So I think people need to be flexible. Um, in this environment and understand it, it may be, uh, it may take more time, um, but, you know, know that you have, you wanna just increase your probability of success because the worst thing you wanna do is spend a lot of time on a failed process.

Justin Kendall [42:42] Townsend, uh, with fewer buyers out there and more sellers potentially, uh, what, what are the conversations you're having? Where, where are people's heads at now and what they're looking to invest in? And have craft breweries lost any luster in the in the eyes of investors?

Speaker 4 [43:03] Well, um, I, I still, I think what, you know, what we're telling companies is to focus on execution. Um, you, you can't plan for an exit. So first and foremost, focus on execution. Um, you know, what are buyers looking for? I, I would, I would suggest that the strategic buyer set, um, would still be active if a brewery checked the right boxes, um, uh, unique region, growth, um, and perhaps some other characteristics. So, um, and then, you know, I think, you know, COVID is, is a challenge. Um, you know, COVID has really hit the breweries that had an over-reliance on on-premise. So, you know, I think if you have a healthy wholesaler business and you're growing, Um, you know, we have, we are working on something where, you know, the buyer is looking at COVID as, as, uh, uh largely an add-back. Meaning, you know, the tasting rooms will reopen. So, you know, you really shouldn't get hit on value because your tasting rooms are closed this year. Now, having said that, I think on-premise wholesale, It's not gonna come back like an add-back. I mean, it's just not, it's not gonna come back next year to the level it was um in 2019. So I think that's gonna be slow to come back and, you know, we're gonna have to see what impact that has on valuation. Having said that, some, some of these brewers have changed their cost structure. So they're still remaining profitable despite slower growth. But there's a, there's a uh I mean, notwithstanding the, the, the, the, the, the, the thin uh buyer set and the overabundance of sellers, I, I think, you know, the layover of COVID makes it incredibly challenging environment to get M&A done right now.

Speaker 2 [44:38] Uh, all great points, Townsend. Um, got a great audience question that totally lines up with exactly everything that you just said. Uh, one of our viewers wants to know what are the characteristics of an independent craft brewery that has successfully pivoted in the COVID environment? Can you point to a specific example, and what did they do that you view as unique or innovative? Townsend, have you seen anything out there?

Speaker 4 [45:00] Um, I'm unmuting. Uh, look, I, I think, I think first and foremost, um, uh, the, the fact if they had a, if they had a healthy distribution network, um, and not, and, you know, a reasonably high percentage of their sales that were going through the wholesaler and three-tier network, um, That's more stable. I think what you're gonna see, and it's been well written about is that um the shelves get too crowded, um, you know, small regional crafts were taking up shelf space, and I think consumers today, first of all, there's a shift to DTC. We'll, we'll see how that pans out in beer. But I think consumers are going into the store looking what, in large package formats and looking for what's familiar. Earlier, um, and quick and easy to buy. So, I, I think what will happen is your large regional brewers will fare very well through this crisis. In fact, they may even benefit from this crisis. I, and as you know, the statistics on the large brewers like New Belgium and Sierra, they're doing very well this year. I think it's gonna be the small brewers that really suffer. So, I think if you're a strong regional brewer, and you're growing, you haven't expanded into too many states, um, you know, you should have the characteristics that will make you attracted to a buyer, whether it's today or down the road.

Speaker 2 [46:10] Craig, do you, have you seen anything in particular that you think would really make a brewery successful right now? No, I,

Speaker 3 [46:16] I think Townsend made some good points. You know, what I would add is things go in and out of style in this industry. So when we first started looking at the industry, you know, 89 years ago, you know, people didn't, didn't really take taproom revenue into account because they were like, well, you can't really scale that, and, but then the view changed and people started to say, well, taproom revenue at least gives you some solid profitability as you grow the business. And, and, you know, now we're in a period where, as Townsend said, you know, wholesale distribution is very important, so chain authorizations are key. And so I, I, I think the brewers that have, that are doing well with wholesale right now will You know, are, are, are seeing the benefit of that. And, and there are brewers that are, that were heavily reliant on, on-premise that are now pivoting and changing their, their business plan, but, um, You know, I, I agree. I, I, I think that the crisis is going to hurt the long tail. Um, it's gonna hurt some of these smaller brands and the big brands that are easy to go into, you know, down here, Publix or, or whoever and just pick up the, you know, not only Kraft, but, you know, I, I would venture to guess that the big brands, the, the, the Coronas, the Anheuser-Busch's, etc. are also seeing major increases just because they're, they're easy to grab and, and they're familiar, and especially in the early part of this crisis, people wanted to return to comfort and familiarity.

Speaker 4 [47:33] I, I would just add one thing. You, you asked about what, what breweries have done. I, I think it's, you have to be really creative. Uh, I think some of the breweries that were more, uh, beer to go and on-premise, um, uh, some have done a really good job of figuring out how to do delivery by, by region or zip code on a, on a daily basis. Um, some have been able to, uh, lobby their local municipal municipalities to expand their footprint of their parking lots. Um, I think you just got to be really creative.

Speaker 2 [48:03] Great points. A lot of innovation out there lately. It's been, been good to see at least. Um, Nicole, have you seen any great examples of anybody piloting through this time well? Yeah,

Speaker 5 [48:13] I mean, I think it's uh for the smaller ones that we're relying on taproom or, you're not gonna be able to flip, flip a switch overnight and, and get into wholesale and chain distribution if you didn't have it before. Um, if anything, that's just gotten harder. So I think the, you know, I've seen several smaller breweries, you know, here, here on the West Coast and Pacific Northwest do some very interesting things with social media, social engagement, special releases, special release parties in the parking lot, um, those types of things, and you know, they've definitely accelerated those calendars where you maybe were only doing it once a month and now you're doing it twice a month or, you know, you can't oversaturate the consumer, but I think they've seen, you know, you've seen a lot of interesting things with direct to consumer and social media. That you know that, that trend sort of um uh I think goes beyond, much beyond beer um and I think actually it'll, it will cause these companies to get um really smart on that um during this and that will benefit them in the long run.

Speaker 2 [49:14] Ryan, have you noticed anything that's impressed you over the past few months? Anything that, that breweries have been doing?

Speaker 6 [49:20] Yeah, I think just the, the creativity in general, to find ways to either sell more product or change the channels you're selling in. Um, I mean, I'll brag on a former client of ours, Brewdog, not in the US, but, um, obviously have some presence here, but, you know, in the early days of the, of the pandemic, you know, they have, Brewdog has over 100 bars in Europe, and they took a lot of their bar employees and put them to work merchandizing in grocery stores in the UK and Europe. Um, and it was a big benefit to the grocery stores because they needed help getting stuff on the shelves cause it was flying off so fast. And it was a good benefit for them to keep the employees working and to keep their products stocks as well as other, other brewery products. Um, I've seen a few breweries in the US do that as well. Not so much in the last couple of months, I would say, but it's amazing how creative people can be when they've got a business to run and they're trying to take care of their employees.

Justin Kendall [50:06] We got another good uh audience question in here. Uh, a reminder, you can text us at 617-336-8560. That's 617-336-8560. Now that we are through the initial panic of the BA numbers of projected closures, have you seen any stabilization in those closure projections or shift into M&A? And I'll toss that to Townsend to start with.

Speaker 4 [50:36] Uh, I, we haven't seen any shift in the M&A. Uh, I mean, there's been no deals, uh, material deals have been announced. And I think if you're hoping that M&A is your solution, uh, to avoid closure, um, you shouldn't, you shouldn't plan on that. Um, the number of closures. I mean, uh, as a percentage of total breweries is still incredibly low. Um, uh, you know, I think the PPP loans have helped. Um, but, um, I think there will be more closures to come. Part of it is, I think Nicole mentioned it, are you levered or not levered? Um, uh, so, uh, I just, uh, You know, I, I, I, I guess your question is, are, are there, are there solutions to avoiding closure?

Justin Kendall [51:21] I think it's probably more, uh, is there more exploration of options. Due to COVID or have things sort of settled down in this period where we've got the PPP money, things have sort of stabilized. So are we at a more stable juncture or has there been more of a rush to explore options and sort of uh In this sort of existential crisis.

Speaker 4 [51:50] Yeah, and I'll, I'll be curious what others say. I, I, I think there are definitely an increase in breweries that wanna sell. Um, I think our advice is if you don't have to sell, now is not a good time to sell. Um, having said that, you can still get a deal done today with the strategic buyer if you check all the boxes, and, you know, I think we're probably all working on a couple of things that fit that description. Um, but, uh, um, you know, Yeah, I mean, I think, yeah, that, that, it's, it's a Uh, I'll be curious what my colleagues say.

Justin Kendall [52:22] Ryan, in the early days of the pandemic, you and I, uh, discussed this very topic. You know, you said at the time that you were getting a, fielding a few more calls than usual and from some folks that you probably wouldn't have expected before. Has that sort of settled out, or do you think that more people are still sort of in that exploration of options mode?

Speaker 6 [52:43] Uh, there's been an interesting sort of ebb and flow. I think in the early weeks of the pandemic, we definitely got more calls from some brewery owners of, of amazing breweries that never planned on selling, and were suddenly considering it. And then it it quieted down for a month or two or three, and then I would say in the past, 1.5, 2 months maybe. Um, I think as people have seen that the world is probably not gonna return to normal as quickly as they hoped, we've had more calls come in from similar breweries that like Townsend said, the, the cream of the, the cream of the crop, to check all the boxes that are now, again, considering maybe, maybe I should think about selling or taking on a partner or de-risking or doing something because if it's pretty clear this world is not gonna be normal for 6 months, 12 months, 18 months, who knows? Maybe I'm better off looking at my options before there's a mass rush to the exits.

Justin Kendall [53:33] We know that there's one buyer out there that at least has a roadmap for building a platform, and that is Lion Little World Beverages. Last year they acquired New Belgium. Recently, Simon Thorpe exited the company, but in a conversation with myself, he said that they are still very much working on that roadmap and the idea is to build a platform of around 3 million barrels. With the understanding that you all can't really speak on specifics here, what is, so, how, how do you view, view the, the sort of platform, the sort of craft on craft platform? Can that be successful? And I'll, I'll, I'll start with Craig. What, what, what do you think of these type of platforms that try to build up to, uh, you know, the 3 million barrel mark?

Speaker 3 [54:25] Yeah, can you do it? Sure, I think you can do it, and I think there, there's some good examples out there of people that have done it. Um, I, I think there's room for more. Look, there's 8500 breweries or something like that out there, so the, the industry is going to need, it's going to continue to need capital because it's, it's a capital intensive. Business, it has step functions where in order to grow, you need more money. And so as brewery owners get to a certain size, I think they finally look at it at some point and say, you know, how much more do I want to keep signing on the dotted line for, for new, new debt or, or new growth capital and, and, you know, so their, their conversation naturally turns to outside capital sources, so. You know, I think there's a need for it in the industry. I think in order to be successful, it's like anything else, you need to be thoughtful about who your targets are, and you need to be thoughtful about how you structure those transactions. So, you know, and, and, and you could do that, by the way, on a regional basis. It doesn't need to be national. So there are good examples of, of some, some groups that have done it regionally on, say, the East Coast or, or the West Coast versus, you know, trying to roll out something across the United States. So it, it, it just has to be thoughtful. Um, but, but yeah, sure, it can be done.

Justin Kendall [55:38] Townsend, you've pointed to some of the challenges of a potential craft on craft deal, uh, as far as excise taxes go. Uh, are there other challenges that sort of stack up with these type of platforms?

Speaker 4 [55:53] Well, I, I think, you know, excise taxes are particularly acute if you've got a brewery that's at $500,000 or 60,000 barrels and the acquires, uh, you know, anywhere north of that because you're gonna have a, a delta of $3.50 to, I think it's $16 and that's a pretty big hit. Um, the other challenge would be, you know, if it's private equity-backed, Or if it's like the, you know, the lion deal where you've got, you know, professional managers and people that understand M&A, I, I think they can navigate through integration and, and developing a business plan. I think the struggle for, you know, true craft on craft is that M&A is not really in the DNA of, of most of these craft breweries. So if you take any of the remaining independent top 10, Um, it, it's, you know, it's just not what they do. And frankly, they, they need to be focused, I think, if you, if you spoke with them on the, on the health of their core brands. So I, I think it's a lack of understanding of how to execute M&A, it's integration, it's a negative excise tax synergies. Uh, you know, distributor alignment probably creeps in. Um, you know, the strategics care dearly about, uh, distributor alignment, craft and craft may not, but that's still relevant even on a craft and craft deal.

Justin Kendall [57:05] Last year, we, we saw 4 very notable deals. We saw Dogfish Head merge with Boston Beer, New Belgium, Lion, as we just mentioned, CBA which is still in the process with AB and the Ballast Point deal. Uh, those all sort of fit the mold of a, a blockbuster. Are, are we in the waning days of the blockbuster deal? And I'll, I'll throw that to Ryan.

Speaker 6 [57:34] I don't know if we're in the waning days, but I think, you know, Blockbusters just by nature of how few breweries there are of that size don't come along that often. Um, you know, so I think it's, it's hard to predict those sort of deals. I mean, it's hard to predict any sort of deals, especially in craft beer and how, how nuanced and unique the beer, uh, system in the US is between the three-tier system and franchise laws and all the things that come together. Um, I think Blockbuster deals are just generally gonna be fewer and far between.

Justin Kendall [58:03] Nicole, uh, do you think that we've seen the fewer or we'll see fewer blockbuster deals going forward?

Speaker 5 [58:10] I think we'll see fewer, but I think, think there are still a handful out there, um, and I do think, you know, again, the private equity-held assets that are out there, there's still several that are of scale and of size, um, and it will be very interesting to see where, where those end up going, um, over the next several years.

Speaker 2 [58:30] Wait, we got an audience question that came in a little bit ago. Craig, how do you think the real possibility of a Democratic president plays in timing an equity sale?

Speaker 3 [58:39] Uh, it's, it's a great question. I think a lot of people probably be very happy, um, you know, some people, maybe not so much, but, um, you know, without going political with my answer, I think if you look at, at Joe Biden's platform, I mean, he says he's gonna increase taxes, and I think after the spending that you've seen the US government go on. COVID, it's, it's, you know, undeniable that taxes are going up. I think Biden's current plan talks about maybe doubling the capital gains tax. Now, that also takes into account that, that, like, well, we have a Democratic Senate that's gonna pass his tax plan. So, you know, I'm not giving any political pro pro uh You know, uh, forecasts, but what I would say is there is a very real possibility that capital gains taxes are going to increase. And, and so, you know, it's something that people take into account. I always tell people, don't let taxes make your investment decision, so do what you think is the right thing to do for your investment. And for your business rather than making a decision solely about taxes. But, you know, when there's a possibility that taxes could double, it's something you've got to look at, although we're really getting like too late, Jess, almost to, to decide, hey, I want to do something today and try and get something done for the end of the year. It would be very, very tough.

Speaker 2 [59:55] Noted. That's

Justin Kendall [59:58] That's our show, is what Jess is trying to say. That's gonna have to be where we leave it. It is 4 p.m. Uh, I, we appreciate all the questions that came in. Thank you to everyone who tuned in. Also, thanks to our guests, Craig, Ryan, Townsend, and Nicole. Thanks to our AV team on the back end. Thanks to Jeff for co-hosting. We appreciate it. We will see you August 27th for Brew Talks. Register for free at Brewbound.com and we'll see you then.