$2.4M Brewpub for Sale: What Are We Thinking?
30:22 Share

A lot of the owners do it for the fun or the prestige of it rather than the profitability. So I always kind of look a little bit differently at these kinds of deals. It ranked number one in bars and pubs for Albuquerque on TripAdvisor. So I think it's a good location, seemed to have a good reputation.

But of course, Heather, you're exactly right. Like this is a tough business. Like any restaurant is a tough business. This group up is probably losing a little bit of money when market rate rent is being paid. Hello, another episode of Acquisitions Anonymous. We don't have 100% beers anymore. And thumbs down on just the plus inventory alone.

Welcome to Acquisitions Anonymous, internet's number one podcast about small businesses for sale. Today, myself, Bill, and Heather analyzed a thriving taproom for sale up in Albuquerque, New Mexico. So super fun one, crazy asking price, and I think we'll let you know what we thought about it through the course of this episode. So stay tuned, check it out.

Hey everyone, it's Bill. And I want to tell you about maybe the most exciting sponsor we've had in a long time on the pod. It's called Capital Pad. And it is the thing that I wish existed when I started my journey of operating and investing in small businesses. So Capital Pad is a marketplace for acquisition entrepreneurs. That is people who want to buy a business and need capital to list their deals and solicit capital from other people who want to invest in

in acquisition deals. So if you want to back somebody buying a small business, Capital Pad is the place to do it. And if you want to buy a business and need capital, you can go on Capital Pad to be introduced to investors. So the really great thing too from the investor side is that Capital Pad takes care of all of the details that can get hairy with small business acquisitions.

They handle standardized terms, standardized governance, standardized distributions, all upfront in black and white. Basically, Capital Pad professionalizes investing in small businesses. And the returns can be really, really good. I'm so stoked they exist. It's founded by my friend, Travis, who is a phenomenal entrepreneur in his own right.

So if this sounds like something that's appealing to you, if you want to buy a small business and need capital, or if you want to invest in small businesses, go check out CapitalPad.com and tell them that Acquisitions Anonymous sent you. Heather, how is loan volume? Are things up or down post-Liberation Day? We've been liberated from our loan volume.

It's down a little bit. It is down a little bit. It's not terrible. Certainly caused some deals. There's deals out there that are exposed to tariffs and they're just not going to transact right now. So put a lot of things on hold.

And in general, it's just kind of a little bit down to flat. Still good stuff coming in the door, but it is a time of uncertainty, I think, in terms of deal making. So the general kind of vibe was if a deal is heavily tariff exposed, people are just like, let's just wait and see because it's tough to underwrite, tough to know what's going on?

Exactly. You just have to wait and see. The buyers will want to wait and see. And frankly, the lenders will want to do that too. Even if you got a little bit further down the road and we put that in front of a lender, they're all going to say the same thing. We don't know the effect yet on this kind of business and we're not willing to lend until we at least know. So it has kind of been a bummer for those kinds of deals, those kinds of the sellers, especially if they've been working on a deal for a while. Yeah.

And then just in general, I think there's just uncertainty about other industries as well. It's just a tougher time to project what the future is going to look like. Yeah. I think that's one of the things people –

struggle with when they start to analyze businesses is, okay, you need to remember this is a people are trying to estimate what the future cash flows are of this business and then pay a discount for that based on what the risk is going to be. And instead, people get really wrapped up in what do comps look like? What are rules of thumb? What is this and that? And those are all just ways of backing into ideally, what are the future cash flows of the business? So I hear you. Yeah, exactly.

So it is – we'll see. We will see, but things are still okay. Yeah. Well, the good news is it's a good time to actually make some mistakes in the economy. We're going to have bad leadership in Washington. Now is a good time because the economy – Was pretty good, yeah. Yeah, and I think everybody was surprised by how resilient –

and resistant the American economy was to stupid stuff and outside factors. And we saw that in COVID where like, I mean, sure, you know, fixed asset prices went up like crazy when we injected all that money in the economy. But by and large, like the fact we only had 9% inflation or whatever was kind of a miracle. Yeah, really? It was. Yeah, it was. And it is when you work in small businesses like I do every day,

It gives you a lot more confidence in exactly what you just said, how resilient things are, where people do continue to spend that might surprise other people. But, you know, it all keeps working. Nothing just stops. Even in COVID, it didn't completely. So, yeah, I think we'll be okay. But it's a little bit tougher to make some of these deals come together right now.

Well, capital finds a way. And speaking of capital, Bill D'Alessandro is here, newly liberated from business ownership. Congratulations, Bill. Sorry I'm late. Thank you. Yeah, this is my first Acquisitions Anonymous after selling my business. Well, so I was thinking about it. I was like, I hope Bill comes today because I'm expecting him to be making offers on everything. Everything looks great. Yeah. Is this a bar? Oh, great. So this is a listener suggested bar.

Because I guess he watched my video about breweries and brew pubs. So he was like, well, I know a lot about this, so I'm going to send you this deal. So we have this deal. And then I think he had sent me some comments via Twitter as well. So I'll bring those up after we read the deal. But this is a flourishing tap room for sale in Albuquerque, New Mexico. And they're throwing in the meth lab for free. Yeah.

For free. Well, it's flourishing. It does kind of have that look to it. If you're not watching on YouTube, you may not catch that joke, but you should check out the look of this place. It does have that look. Albuquerque was where Breaking Bad was filmed and located. So hence the meth lab joke. But yeah, Heather, how would you describe this pictures of the brewery?

It looks like, well, from the outside, it looked like a 1970s house of some kind. On the inside, it looks a little bit more interesting, I guess. I mean, they've got all the tanks and, you know, it's a very not fancy kind of place. So I would hope that the claim to fame is really good beer. I guess that's the vibe it gives me, I hope. It looks like they've got a fair number of tanks. I mean, they must be doing decent enough volume here. Yep. Mm-hmm.

To use an old, old person term, this is kind of ramshackle is how it is. Just associated different parts put together. Can we not say ramshackle anymore? Are we giving away our age by saying that?

I don't think, I don't, I was in, I was in a one-on-one with Robin, my chief staff earlier. And I said something and she's like, yeah, people don't talk that way anymore. I was like, I got it from the millennials. Like I thought I was hip. Cause I got it from the millennials. Those people aren't hip anymore. You're you got to move one more generation closer to hip. My kids give me a really hard time. You know, I, I find a funny video. I show it to them and they go, that was two years ago, mom. Yeah.

All right. So let me tell you more about this brewery. The asking price is $2.4 million. Sorry, I'm a little giggly today. It's not going to take much to make me laugh. $2.4 million for this thing. Cashflow is $300,000. So Bill GPT, they're asking. 8X. 8X cashflow for a brewery.

All right. Moving on. Gross revenue is $1.8 million. FFE is $200,000. They have $50,000 in inventory and the real estate is $2 million, not included in purchase price. I was like, well, maybe they included the real estate. Nope, they're not. I was thinking maybe there would be a whole bunch of FF&E, but there's only $200,000. So, all right, keep going. Inventory? It was established in 2016. Yeah.

And it is called the 377 Brewery. It is a rare investment opportunity in the booming craft beer industry, and the established brewery stands as a testament to innovation and quality, boasting a strong brand, loyal customer base, and impressive growth trajectory. They put a video here, a YouTube video, which is kind of a first in a long time. I think the last time we saw that was maybe the pizza boat.

I love it though. I love video. I mean, this looks like it's more of a marketing video, but I've seen a couple of times where sellers have done a specific YouTube video for the sale, like showcasing the business for sale, interview with the owner, et cetera. I think it's actually really effective. I like when they do it. Yeah. When we sold our coffee business, we did like a 20 minute interview with Clint Fiore, the business broker, where he just basically asked us questions and myself and one of the other owners just answered questions.

did the first 30 minutes of the management meeting after the introductions. We just did that as a video so they could give it to people before we had the, what was the feedback on that? People loved it. Yeah. Positive. And it probably scaled you guys to save you a lot of time. You didn't have the same call 20 times.

Yeah. I mean, you just went through selling a business. How many times have you, I mean, well, I don't know. You didn't run a broad process. We didn't run a process. We, we had a proactive outreach, but didn't have, you didn't have to do the management meeting tour, which I've, I've been on before. After the 14th or 15th time you do it, you're like, okay, like you'd, you ask your business partner to do the next one.

All right. So I noticed something in the video, though, which is that it's not just a brewery. They also have food. So this is a definitely a kind of taproom food, you know, kind of your classic micro brew in Albuquerque. It's got fries. It got burritos. Burgers look good. You know, place to go hang, eat some food, drink some beers. Seems great. It looks cool. I would totally hang out there. Yeah. Tell us more. What else do you know?

Yes, I would hang out here. I would hang out here. I would hang out here. It looks nice. Yeah. What else do we know about this? All right. Let me tell you some more. It's located in Albuquerque, New Mexico. Inventory is including an asking price. The real estate is owned, but the owner is not including in the asking price. The building square foot is $8,000 and it employs 26 people. FF&E is included. And

And it includes a fully equipped kitchen setup with award-winning recipes, three walk-in coolers, ensuring optimal food storage, a 20 beer tap system for an extensive draft selection, refrigerated display beer cooler to showcase premium beers, versatile seating arrangements, including tables, booze, bar stools, nine 50-inch TVs, outdoor patio area, furnished distinctive horseshoe bar, enhancing the venue's character, and a climate-controlled environment featuring a swamp cooler and refrigerated air system.

glassware plates utensils and cleaning supplies for smooth operations the competition is good with positive cash flow what does that mean they filled out the wrong field the brewery industry offers significant growth potential fueled by innovation consumer trends and operational efficiencies it also faces challenges such as intense competition regulatory hurdles and the complexities of scaling operations strategic planning and agile adaptation to market trends are essential for sustained

success. There's limited financing available and there is transfer training optional. After eight years, my business partners and I are ready to retire and enjoy our time. The business is currently an established franchise. Whoa, that was a huge twist at the end. That's not right. So I saw that and I Googled it. You can search for the 377 Brewery and I don't see any other 377. Okay. So I cannot be wrong. A few typos here, I think. A few mistakes. Yeah. I mean, unless this is like the type of thing...

where like it's like a white label franchise or something where they teach you how to, you know, here's all the recipes for the beer and the food and call it something local. So people want to come. I don't know, but I don't think there's a franchise. Uh, there's a lot of interesting stuff to dig in on this. Heather, Heather, where would you like to start?

Well, it's priced a bit high. Okay. It's, it is a restaurant. Okay. It's a brewery restaurant, but these are everywhere. I don't think that there's anything, you know, that you can say is particularly unique here. And so I think it's priced really, really high. It's always a tough industry to be in food service. Yeah.

When I worked for a particular bank, we had a vertical that was focused on beer, wine, craft beverages. And I learned a little bit about that space in that a lot of the owners do it for the fun or the prestige of it rather than the profitability. So I always kind of look a little bit differently at these kinds of deals. You know, they're often not very profitable and expensive.

in this pricing doesn't make any sense to me. So I'm so far not too excited about this one.

So let me try to make you a little bit more excited. I agree. So this is – I looked at the location. And I also found a news article that – because this is Publix for sale, this was covered in the Albuquerque Journal. It is apparently the number – it ranked number one in bars and pubs for Albuquerque on TripAdvisor.

And it is right near the airport, which I think in Albuquerque is a good spot. And it's near a bunch of hotels and other restaurants. So it does seem like the location is really good. It's right near the Air Force Base, the Kirtland Air Force Base as well.

as well. So I think it's a good location, seem to have a good reputation. But of course, Heather, you're exactly right. Like, this is a tough business, like any restaurant is a tough business, right? I mean, it's just another margin on beer probably better, but the margins on food are thin and like the hours are tough. You know, just this is the restaurant business. This is a this is a tap room, not necessarily a brewery that's making canned beer or packaged goods. Yeah. Yeah.

The other thing that I think, I mean, obviously the price at 8X, like that's goes without saying that's too high. But the other thing is the market for breweries is going through a contraction right now. So we had this huge overexpansion of brew pubs on every single corner, right? You know, local IPAs everywhere as far as the eye could see. And now they're contracting. I have seen several of these for sale in my town, which in Charlotte, which is a boom town.

No offense to Albuquerque, but relatively. And I mean, they're going for like the price of the tanks. I mean, it's like it's brutal because the whole world is over brew pubs. Now, not to say that this maybe this is a good one and a good location. And this brew pub deserves to continue to exist. Right. But it's I just think like the buy or build question here is tough in brew pubs right now.

Hey, everybody. If you've listened to the show, you've probably heard us talk about franchises. While franchises can be a great path to business ownership for the right person, there's a lot of pitfalls and it's important to be really careful as there are certainly good franchises to be in and bad franchises that you don't want to be in.

Connor Gross is a friend of the pod and a resident expert on franchises. And Connor not only owns and operates his portfolio of multiple franchises, but he's also a franchise consultant and helps others work through while picking the right franchise for them. So as he's sponsoring today's episode, everyone should totally click in the show notes below to join Connor's newsletter and attend one of his Gateway to Franchise Ownership workshops. If you're ready to move and move quickly, schedule a call with Connor and his team today.

I mean, I know folks that have built brew pubs that look generally just like this and they don't make their own beer, but they'd sell other people's beer at a low margin and do pretty darn well with it or any kind of a beer garden type thing. And the reason it works so well for them is basically they're

the husband is like Sherlock Holmes for finding cheap used equipment to rebuild the whole thing. Like he just went, he went and recreated this whole thing in a lease space for probably $200,000.

just because he was like at every auction when a restaurant went down he was networking with everybody like hey oh you're you're shutting down can i come by your taps like he was that guy and uh they're killing it but that's because their invested capital is 240 000 not 2.4 million and they're not making beer like you said so i mean there's a whole cost to brewing your

And that was a pretty good, that photo they showed, I mean, I don't know how many square feet it is in their space where they actually have the tanks. But right there, yeah, that's a lot of investment. That's not just investment in the equipment, but in the time it takes to brew, to bring in the ingredients. They've got to hire people who know what they're doing to make it taste right. That gets pretty expensive. And I think that's the tough part about especially this type of food service business. Yeah.

Yeah. I mean, to me, because of that, like the buy then build, like what's the value in the equipment? To me, this all comes down to the lease, right? It's like, what are you buying here? The name, the location and the ability to stay at the location. Because, I mean, let's be real. Like if you want to start a brew pub, it's going to cost you way less than two point four million dollars.

So the only I mean, way. Right. So the only assets here are the name and the lease. So the first thing I got to know is how long is the lease? It says that sounds like they've been there for eight years. If they're on a 10 year lease, that's tough. Oh, there it's owned real estate. They own it. Yeah. Yeah. Interesting. But they're not selling it.

Not selling it. So they're going to make you pay market rent. They'll give you a longer term probably, but they'll make you pay market rent. Yeah. Well, but that's okay as long as you burden the financials for the business with the market rent and price it appropriately. I mean, if anything, this is good because you have the chance to get a really long lease. This is way better than walking into a lease that has two years left on it. And in that situation, this business is not transactable.

essentially. I look at a lot of financial statements and when the real estate is owned, I can't tell you it's very few times that the earnings are fully burdened for market rent. And a lot of brokers don't catch that in their listing. They'll list it for the EBITDA that is before market rent. And then you've got to come along and discount it. So it's always something that sticks out in my mind. When I see that they own the real estate, I automatically presume that the broker missed that

missed burdening it for market rents and that you're going to have to do it. You're going to haircut it further. I could be wrong here, but it happens. I'm sure you're right. I mean, but to me, they've already priced this at 8x EBITDA. Like you've already got to have a pretty serious repricing conversation. Yeah. So like the question here is like, can this business clear the market at all? Like the bid ask spread is going to be massive. I mean, the ask here at 2.4, like

I think the bids have got to be, you know, three to 500 K like one to two X, I would think, assuming the 300 K cashflow is burdened with a market rent. I mean, if it's not good luck. Right. I will bet you dollars to donuts. When you look into this, this group of is probably losing a little bit of money when market rate rent is being paid. I can't, I've seen this so many times where it's just like, Oh, this is a passion project.

And the numbers just happened to shake out this way because, well, that's oh, this is market rate. This is what we're doing. But in reality, like there's no way you're finding a spot for what these guys would pay in a rent. Just no way. If if they are separating rent, which is a big question, sometimes they don't even do that. So let's say, though, so these guys, I'm going to presume, bought this real estate and the building eight years ago and opened a brew pub in it. Right.

They have basically land banked this real estate for the last eight years, you know, cash flow at the very least, let's say it's breaking even, right? They've paid the mortgage with the brew pub at the very least. Is it possible that this is the type of situation where they should close the brew pub, lease it to something else at market rent and sell the real estate for a massive gain? Probably the highest and best use. Yes. That's what that would be. Yeah. Yeah.

Yeah. So it's possible these guys, I mean, it's ironic, but I've seen it in so many small businesses over the last decade of zero interest rates, right, in the United States, is that the real people make all the money on the real estate. The business, like, whoopsie, the business is barely worth anything compared to the real estate we bought. And it could be very well the case here. The business is worth functionally nothing, but they've made a 4X on the real estate.

I've handled some transactions with clients where the seller didn't think their business was worth anything and therefore they just sold it as real estate. You get to have the business for free. Here's the real estate. So what's interesting also is assuming that you need to sign a new lease here, the sellers could really screw themselves over if they sign a lease with buyer not at market rate. Right.

Right. So like this is like a classic, like accidentally cut off your nose to spite your face, like trying to sell your brewery, put a below market lease in there for 10 years or whatever, and not realize that based on cap rates, you just nuke the value of your real estate. Yeah. You know, by way more than you would have gotten if you just charged the business a market rate. Right. Right.

Yeah, and that brings up another point. How many sellers don't know the relative values of their enterprise versus their real estate before they go to market?

Proof, you know, the proof of that is when people do a sale lease back, when they're actually able to get a signed LOI for a combined price. But the reality is they're actually getting the real estate at below market. And then they're able to go do a sale lease back and take the net gain as cash.

That's basically, that's the use case for a sale lease back is somebody's actually been able to get the whole thing under LOI and technically they're getting the real estate below market. Sellers often just don't know the relative values. Yep. And which is why you should have a broker who knows what they're doing instead of trying to sell your business for sale by owner. That's correct. And it better be a good broker because I have seen this happen with brokers on the deal.

Oh, really? Ouch. Yeah. You'd be surprised what I see. Yeah. I mean, but isn't it true, Heather, like there's this entire like asset class of – there's this entire asset class of capital that basically goes around trying to find unsophisticated sellers and –

I don't want to put too strong a point on it, but rip them off. Yeah. Right. With a deal structure like that, where they can sell lease back the real estate at closing and be plus a million dollars or something. Bada bing and everything else is gravy. Like there's that's a huge part of what search is. That's correct. I mean, whether I would use those exact words or not. Yeah.

I know I was pretty sharp on it, but low market, whatever. But yes, absolutely there. And I see transactions that are just like that, that have happened with and without brokers. So, you know, it's it's it's unsophisticated sellers, but also unsophisticated brokers.

combined that can still result in a deal like that. Got a couple of data points from the guy who shared this deal with us, Michael Simpson, and I put it up here on the screen. One data point is this is a tap room, which basically gets around the limitations on local bar licenses in New Mexico, which are very limited. And buying a liquor license to open up a bar costs 500 to 750K if you want to open like a neighborhood bar in New Mexico. It's crazy.

He says, number two, the asking price is ridiculous. No way the real estate is worth 2 million and it's not included in the purchase price. Number three, their margins are pretty good, but they're in like a weird Goldilocks zone where they're not big enough to produce such that could do at scale off premise consumption. But they're big enough that it's like you've got a big nut to kind of crack in terms of making sure you cover your costs with this amount of equipment and stuff.

So, well, so that's interesting. So a liquor license in New Mexico is 500K to 750K. Does that mean that they have one of these or that it's a backdoor to not need one of these? This is a backdoor version. They don't have one. Okay. So they can only serve beer. So they can't serve wine or liquor, I assume. And maybe can they only serve their own beer? Is that part of it? I wonder. Sounds like it. I don't know. Like if you produce the beer on site, you can serve it without a license. Yeah.

Interesting. So they have to brew it. Which is probably expensive, right? Well, it says the margins could be good. It says the margins are good for beer served on tap because you can, it costs to brew a glass of beer is about 50 cents and you can sell it on tap for five bucks. So that's good. But he also goes on to say that the problem is like, you probably sell that same pint of beer, you know, at retail for five bucks over the bar, but 75 cents is,

wholesale and also that, you know, it's so hard to scale up a canning and bottling operation, you know, especially in a saturated market. So I just think this is tough. I mean,

Someone once described to me like brewers and restaurants as like rich man's folly. Like everybody wants to own one, you know, open their own bar or restaurant. But actually what people want is to be the best customer at an already existing bar or restaurant, which is massively cheaper and way less headaches than starting your own. You can just go in there a couple of times a week and tip really well. And it's basically the same experience without all of the, you know, millions of dollars up front.

Cool. We are coming up on the witching hour of 25 minutes. Do you guys want to rate this deal? I'll start with you, Heather. What do you think? Well, thumbs down. Tough business to be in. I don't know how you make money. And therefore, if you can't really make money, how are you going to sell this? For me, I'm thumbs down. No meth lab. I'm out. Maybe there is a meth lab. That would be awesome. Yeah.

If this is a front for a meth lab, it's probably a great business. Okay. So one time I joined a board of a for-profit company and we're like 15 minutes into the board meeting. And I made, I mean, it was a small board meeting, but I made the joke. I was like, whoa, whoa. I thought this was a drug front. What are we, we're in real business here? And anyway, it set the tone for future meetings. We had a good time. So.

Anyway, no meth lab, Bill? What do you think? I mean, I'm out just because it's a bar or restaurant. And I'm out on functionally all bars or restaurants. There's just such hard businesses. I mean, if I'm going to buy a business, there's just so many easier ways to make money than bar or restaurant. Brewpub or not or whatever. It's just tough. My question is, you know, does this sell at all?

And I'd be pretty surprised. I think you've got to look at it through the lens of the real estate and the lease. And I'm not sure this is the business that can pay the highest rent on this parcel, which means that whatever you put here, if you put this business here, you're impairing the value of your real estate. So if I'm the seller here, I figure out what is the type of business that pays the most rent on this parcel. I find a way to get that business on my parcel and then I sell my parcel.

On that note, all right, we'll shut this episode down. We'll put a link to the listing below in case you want to check it out and you're in Albuquerque and you need a place to put your meth lab and drink beer, this may be for you. Otherwise, I think it's a pass for your hosts. We'll be on to the next one.

All right.

in the X community, apparently, now that I'm in there. Thank you, Michael. Heather, I don't know if you're in there either. I'm there. I was invited. You were invited? Yeah, I was invited. I totally invited all three of you guys. Man. I was watching the Lakers game on TV and I was like, I'll just start a community. And I just started clicking buttons and I invited you guys.

Man. Okay. Well, now that I'm there, it's not cool anymore. But if y'all are listening, you can go find it on X. It's called Acquisitions Anonymous on our communities. Maybe we'll see you there. Come see us.