Tuesday 20 June 2023

Black Sheep of the family

In April of this year, eyebrows were raised by the news that Black Sheep Brewery was looking for either a buyer or new investors. This was a poster child of the real ale revolution, set up by Paul Theakston when his family firm was sold to Scottish & Newcastle, and appearing to the outside world to be a sound and well-regarded operation.

All became clear when the company entered administration in early May, news that did come as a severe shock. Sighs of relief were breathed later in the month when it was announced that it had been acquired by London-based investment company Breal Capital, thus ensuring the future of the brewery and preserving 150 jobs.

Somehow this all seemed a bit too convenient, and it must be remembered that the company’s shareholders and creditors – including HMRC – ended up losing all their money, while their lenders suffered a severe haircut. One very significant loss was that of the CAMRA Members’ Investment Club (CMIC), who at the last valuation held shares valued at £395,000, accounting for 2.39% of their whole fund and 13.57% of Black Sheep’s issued capital. As someone with a small holding in CMIC I have suffered a personal loss of a couple of hundred pounds.

I recently came across this blog by a disgruntled investor in Black Sheep who points out a long sequence of management failures and poor decisions. I have no knowledge of this beyond what has been publicly reported, but if even half of this is true it is extremely damning. In particular he points out that in 2016 Paul Theakston rejected an offer from Marston’s of £4 per share, whereas shortly before the company entered administration the price was only around £1.20. (Although, given Marston’s subsequent history, it’s unlikely that the brewery would have survived until now). He also suggests that, given their substantial holding, CMIC should have taken a more active role in monitoring the company’s fortunes.

The directors blamed difficult trading conditions caused by Covid lockdowns and the “cost of living crisis” for the company’s failure. Yes, times were hard, but many other companies have survived without coming anywhere close to the brink. In most business failures, not just in the brewing sector, what brings companies down is not so much poor trading as excessive borrowing that leaves them dangerously exposed.

In such situations there are no magic solutions, and it is often a case of being caught between a rock and a hard place and having to make hard choices. The business and the jobs have been saved, but the investors and creditors have been hung out to try. And you do have to wonder whether “pre-pack” administrations of this kind are in practice a kind of get out of jail free card for incompetent or reckless directors.


  1. The value of a company as a trading going concern should be more than the asset prices of it's parts.
    When it's not you get asset strippers, but usually the value of a company is based on discounted expected future cash flows, not asset prices of its stuff.

    A brewery assets is a building and some used equipment. Unless another brewer wants it, it is scrap metal. The building is a block of bricks with a value related to another use from the one that just failed.

    Winding up and selling the assets does not mean the debtors will get paid. After costs, there's often buttons left. The moaning equity holders are last in line anyway.

    A pre pack admin rips off existing holders of paper, whether debt or equity, sure. But the biggest of those is likely the revenue. If the business can be brought back to trade free of it's old obligations, the revenue has written off old tax receipts it was never likely to get much of anyway for the prospect of future receipts from future trade. It's not a bad gamble. Sometimes wages can be paid and some staff retained.

    But someones gotta take the hit. The investors win if it turns into a goldmine and they lose if it turn into a crap pile. As Jim Bownen said "that's the gamble"

    Company law is well established and all paper holders knew the score when they bought paper, Those that didn't are fools and fools are soon parted from their money.

    1. Very true, the blog post highlighted that the individual was well aware of the potential apocalypse ahead, and chose to keep their investment in place, if they were so convinced of the apparent failures of the management team they had time to bail out long before the proverbial hit the fan. Smaller investors with little knowledge of the inner working of the company will loose their money, however, that's the gamble, and most can take the hit, and put it down to experience.

    2. There's also some intangible assets; brand recognition, recipes, staff skill base...

    3. Not sure how liquid the shares are. And he does say he made attempts to discuss the company's direction with the senior management, but got rebuffed.

  2. Hard to take anyone called Charlene seriously as a senior business executive.

  3. This letter to the Yorkshire Post, from another disgruntled shareholder, says pretty much the same thing. https://www.msn.com/en-gb/money/other/black-sheep-brewery-sold-on-the-cheap-as-investors-sold-down-the-river-yorkshire-post-letters/

  4. Cookie is right21 June 2023 at 08:11

    People that lose money are always unhappy.
    There is no indication of fraud, that false accounts were filed. The investors knew it was going down the pan, gambled on a turn around and lost.

    Beer appears to be full of enthusiasts that can't add up, can't read an annual return but think buying shares in breweries makes them part of a club. These are sucker investors. Dumb money. They lose, they always lose.

  5. I looked into CMIC in the late 90's early 00's but decided against investing. Looked into it a few years ago and IIRC it wouldn't have been a stellar investment choice. But more seriously, why is staropramen brewed in the UK so disgunstingly sweet and crap but the pint I had on the continent was crisp and refreshing?

  6. Cookie is always right21 June 2023 at 13:18

    Further to that, Cookie is right, the law of limited liability has likely saved the shareholders not ruined them.
    Without that they would not only have lost the money they put in, they'd be on the hook for their share on the company liabilities.
    Like them Lloyds investors that didn't realise they'd bought paper in an unlimited partnership rather than a limited liability company that gave us all a laugh many years ago.
    Whining losers, these brewery shareholders.
    All need to drink a pint of "man the f*** up" before they invest again or just keep their money in the halifax and shut up.

    1. I think that cookie is right gentleman is a rather scathing kind of chap. Nobody is denying investors take risks. The article is just stating things may have been happening in the background. I also have an A level in economics but don't swear at people. Can the publishers of this site put him in the sin bin?

  7. When Black Sheep put their prices up across the board by 19.5% earlier in the year the alarm bells should have been ringing long and hard in shareholder's ears, but it seems they did nothing. The CMIC committee appear to have questions to answer as to why they didn't bail out and cut their losses.

    1. CMIC is deliberately run in a passive manner, in that shares will only be sold if a company is taken over or exits the industry. If they started to manage it actively it would open up a whole can of worms, and probably in the long term wouldn't produce better investment returns.

      There is a question mark about how much money should be put into small breweries with illiquid shares - they have already burned their fingers by losing about £100k on West Berkshire Brewery.

    2. Maybe it would be better to manage the fund in a less passive manner, without reaching the levels of constantly trading.

    3. I wrote about CMIC back in 2014. I rather presciently said:

      "It has also amassed holdings of 9.6% in Hop Back and 8.7% in Black Sheep which to my mind run the risk of compromising its independence. If it was up to me I’d probably limit it to 5% of any one company."

      I spoke optimistically of investments in Black Eagle and West Berkshire, but Black Eagle is no longer listed as a holding and West Berkshire has been written down to nil value.


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