Tapping into a trend for healthier living, Panoramic recently followed the crowdfunders and invested in low-alcohol brewery Big Drop. David Prosser looks at the thirst for a deal

Five years ago, Rob Fink had the sort of lightbulb moment that entrepreneurs dream about. He’d spent six years building up Fenchurch Law, a firm specialising in insurance that he’d founded in 2010, with business development meetings conducted over boozy lunches, afternoons and evenings. When his first child was born, he decided it was time to take a break from drinking – and discovered how little choice there was for consumers who wanted something other than a cola when out for a drink.

“I like pale ale and craft beer, but there was just nothing for me,” Fink recalls. “There had been a craft beer revolution in the UK, but the industry had completely ignored alcohol-free beer. I started to think about putting that right.”

Fink approached childhood friend James Kindred, a graphic designer with experience in technology, and together they founded the Big Drop Brewing Company. With the help of Johnny Clayton, a respected figure in the experimental brewing community, Fink and Kindred were able to launch their first product, the low-alcohol Galactic Milk Stout, in November 2016.

Award winner

Fast forward to 2021 and Big Drop has expanded its range to a dozen low-alcohol and alcohol-free craft beers. Sales were growing rapidly, and in June the business completed a £3.5m fundraising that valued the company at about £10m. Some £2.5m of that total came from Panoramic Growth Equity (a member of the Corporate Finance Faculty), with senior investment manager David Atkinson joining Big Drop’s board.

The private equity firm, which is a member of the Corporate Finance Faculty, had been introduced to Big Drop at the end of January by Mountside Ventures, an adviser that specialises in helping early-stage companies raise institutional funding.

“We review about 150 company decks a month, but Big Drop jumped out at us,” recalls Jonathan Hollis, managing partner of Mountside. “In a world where sales of alcohol-free beer are growing fast and of changing consumer behaviours, it was potentially the right company in the right place at the right time.”

At Panoramic, Atkinson quickly came to the same view. “This was something different. We really liked the brand and the product was very high quality,” he says. “Alcohol-free is a high-growth market.”

Indeed. Sales of alcohol-free beer rose 58% in the UK last year, according to food and drink market analyst CGA. Even before the COVID-19 pandemic, Britons were gravitating towards healthier foods and focusing on wellbeing – to the benefit of businesses in fields ranging from plant-based foods to vitamin supplements – but the crisis appears to have accelerated the trend.

All around the world

This phenomenon is not limited to the UK. One factor now helping Big Drop, Fink says, is the enormous sums being spent on promoting alcohol-free products by international brewers: “That’s great for independents like us. It raises awareness and acceptance of alcohol-free beers. But the kind of people likely to become our customers probably wouldn’t choose to drink Heineken or Budweiser.”

Panoramic’s funding will enable Big Drop to exploit these opportunities on the global stage. The business has already built a substantial exports operation, selling its products in 20 countries and agreeing production contracts with brewers in Toronto, Chicago and Melbourne. Fink sees the potential for further growth, both domestically and internationally: “We plan to make significant investments in people. Our success depends on distribution and marketing, so that’s where the focus will be.”

There are solid foundations to build on. Prior to the pandemic, Big Drop enjoyed strong relationships with the on-trade in the UK – pubs, restaurants and other outlets – and it expects to generate significant growth now that these venues are emerging from lockdown again.

The COVID-19 crisis also saw the business develop a significant direct-to-consumer platform, which has proved crucial over the past 12 months and will continue to be valuable even after the pandemic is over. Sales through supermarkets and other retail outlets – in both the UK and abroad – complete the picture, with the growth of e-commerce also helping, encouraging consumers to buy regularly.

Fink has access to good support as he pursues these objectives. In addition to Atkinson, Mark Hunter – the former chief executive of Molson Coors – and Stefan Orlowski – previously head of Europe at Heineken – have joined Big Drop’s board, bringing with them a wealth of brewing industry know-how. The two men became significant investors in the company last year and added to their holdings in June’s fundraising.

Atkinson believes Big Drop is only just getting started and that it can continue to generate big increases in sales. “We think there’ll be alcohol-free taps and cans available in every pub in the country,” he says. “Big Drop has the quality of product and the brand to capitalise on that.”

Above and beyond

It was this conviction that saw Panoramic complete its investment in Big Drop within four months or so of first meeting the company – despite the difficulties of doing the deal amid COVID-19 restrictions.

Danny Lee, a partner at Burges Salmon, the law firm that advised Panoramic on the deal, says: “Trust underpins every investment, so face-to-face contact is important, but we’re all adapting to new ways of working.” Initial presentations and term-sheet negotiations were done virtually, he explains, but Atkinson was then able to visit Big Drop’s Ipswich headquarters in person.

Sebastian Humberston, a corporate finance manager at Price Bailey, who conducted financial due diligence on Big Drop for Panoramic, points to another pressure resulting from the pandemic.

“The operating environment for the business was particularly volatile, with the potential for the markets it sells into to open up or close down very quickly because of COVID-19,” he says. “In the months between Big Drop making its initial presentations and us looking at the detail, it had already been forced to revisit its forecasts due to the ever-changing pandemic restrictions imposed by governments.”

For this reason, Price Bailey’s main focus was on whether Big Drop’s ambitious growth projections were realistic, says Humberston: “The overriding things in the company’s favour were very good leadership, understanding of the market and the capability of developing a strong brand.”

The other potential complication in managing the deal, says Lee, was Big Drop’s crowdfunding round on Seedrs last year. While managing issues such as pre-emption rights is routine work for advisers, crowdfunding platforms are relatively new counterparties. “There are practicalities like the need to dovetail reporting with the commitments made to the platform’s users. But Seedrs has a good understanding of the role it plays.”

Looking forward, Panoramic is not working to a pre-determined exit timetable. There has been some speculation, reported in June by the Times and The Grocer, that Big Drop will consider an IPO in 2023, by which time it forecasts sales of £20m, although a trade sale – perhaps to one of the brewing giants – might be more likely. Options are being left open and there’s no pressure to move quickly. Panoramic invested through its Fund 2, which has several years to run. Atkinson adds: “Our focus is on building the Big Drop brand. Then everything else will follow naturally.

About the article 

Read the full article in the Corporate Financier September 2021  edition. Access this magazine as well as our extensive archive brought to you by the ICAEW Corporate Finance Faculty.