New Hampshire’s Smuttynose Brewing, citing overleveraging of investments and missed growth projections amidst increased competition from fellow craft brewers, is scheduled to be sold at a bank auction on March 9.
Overcome by the brewing boom it helped to foster, sales had dropped for the past two years at the well-established, 24-year-old regional brewery.
“The company’s financial models were based on 20 years of consistent growth but the explosion of microbreweries has led to changing dynamics in the marketplace,” Smuttynose owner Peter Egelston said via a press release. “This dramatic shift occurred just as Smuttynose committed to a major infrastructure investment with the construction of the new production facility. As the turmoil in the marketplace stabilizes, Smuttynose, a trusted brand with strong consumer loyalty, can regain its footing with a major infusion of capital.”
Mortgage owner Provident Bank picked the James R. St. Jean Auctioneers to run the auction. It will include the Smuttynose brand, Hampton-based production facility on Towle Farm and nearby Hayseed Restaurant, according to the auctioneer’s website.
“With the arrival of a new owner, we anticipate a smooth transition as we are committed to continuity,” Egelston said in the release. Egelston didn’t return a message from Brewbound, and he declined to comment through a spokesperson.
Smuttynose, which employs 68 workers and generates more than $10 million in annual revenue, will continue to operate in the days leading up to the auction.
Jay St. Jean, operations manager of James R. St. Jean Auctioneers, told Brewbound that potential bidders must be ready to pay “$10 million or north.”
“It is a mortgagee sale, meaning Provident Bank has a note out there they need to satisfy in some manner,” he said. “What they’re willing to take at the auction, they’re not going to expose that number to you, me or anyone else. We’re thinking from all of the work that’s been done that this is going to yield somewhere north of $10 million.”
Smuttynose is just the latest legacy brewer whose financial issues have come to a head in the last 13 months. Last year, Speakeasy Ales & Lagers and Magnolia Brewing Company found new ownership after being purchased out of receivership and bankruptcy proceedings, respectively. And last weekend, Mendocino Brewing Co. and Olde Saratoga Brewing Co. shuttered as those breweries’ majority owner, Vijay Mallya, battles extradition to India on fraud and money laundering charges in excess of $1 billion.
Jack O’Connor, an associate who specializes in reorganizations for Sugar Felsenthal Grais & Hammer LLP, told Brewbound that restructurings and bankruptcy sales are not a sign that the industry is unhealthy.
“It’s a sign of maturity,” he said. “I don’t think it’s a sign of massive downturn or fallout. I just think as industries get more competitive, it means that participants are likely to be edged out by competition.”
O’Connor added that previous sales of legacy brewers have proven that there’s a market for smaller, regional players.
“What we’ve seen in the past in terms of Speakeasy and Magnolia is there’s a market for this out there still in terms of folks who are interested in acquiring these breweries or the equipment and operating in those locations,” he said.
For Smuttynose, the company’s issues apparently stem from an investment made to build a 32,000 sq. ft., LEED-certified gold facility with a capacity to produce 75,000 barrels.
Despite the added production capabilities, Smuttynose was only able to fill 50 percent of its capacity as sales decreased in the last two years. To make up for those losses, Smuttynose had been contracting some of its excess capacity to brands such as Massachusetts’ Night Shift Brewing Company.
Night Shift co-founder Michael Oxton told Brewbound that his company was unaware of Smuttynose’s instability when the company began contract brewing, but those issues “became clearer and clearer” by the end of 2017.
“Over the course of the partnership, we heard some rumblings about potential issues, but they were able to make us beer and had the excess capacity, so seemed like a good fit,” he said. “As we learned more and more, we decided to ready ourselves for any potential problems down the line.”
Night Shift will wrap up production with Smuttynose at the end of the month but plans to find another contract partner in the near future, Oxton added.
In 2016, Smuttynose sales decreased 8 percent, to 48,000 barrels, and the James R. St. Jean Auctioneers listing for brewery tabbed 2017’s production at 35,000 barrels.