HAMPTON — On March 9, Smuttynose Brewing Company, located on Towle Farm Road in Hampton, will be put up for sale at a foreclosure auction.
“We’ve been fighting our way through this process really for the last couple of years,” said Smuttynose owner and founder Peter Egelston. “We, up until fairly recently, really believed we could fight our way out of it. That there would be another card to play. We just eventually ran out of cards to play.”
Smuttynose, which began operations on Heritage Avenue in Portsmouth in 1994, has 68 employees and generates more than $10 million a year in revenue. The company moved to Hampton to build a new facility to increase its brewing capacity in 2013.
Finestkind IPA is the top selling IPA in New Hampshire and Smuttynose brands as a whole outsell all the other breweries in the state by a wide margin, Egelston said.
“We still sell a sizable amount of beer, just not enough to pay our bills and I guess at the end of the day that’s what it really boils down to,” Egelston said.
The Portsmouth Brewery, which Egelston opened on Market Street in 1991, will not be impacted by the sale, he said.
Smuttynose remains open and is conducting business as usual.
If things go according to plan, the Smuttynose sale will be a complete turnkey of the operation to an owner who will continue to run the brewery and Hayseed Restaurant on the 13-acre Hampton campus, said Provident Bank President Chuck Withee, the lead lender who is managing the auction process.
Two major factors contributed to Smuttynose’s financial difficulties: the overall slowdown in the growth of craft beer sales volume and a consumer switch in preference for beer in cans instead of bottles.
“We built this plant with a beautiful, state-of-the-art bottling line where all the growth is happening in cans,” Egelston said.
In the end, a drop in consumer demand due to a boom in microbreweries, a preference for canned beer, an expensive HVAC problem in the LEED certified brewery building that remains in litigation and a lack of working capital became unsustainable.
“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,” Egelston said. “This dramatic shift occurred just as Smuttynose committed to a major infrastructure investment with the construction of the new production facility.”
Withee said the difficulties experienced by his client are occurring across the country.
“It’s not the facility,” Withee said. “It’s not the management. It is a change in what happened with 4,000 new entrants to the microbrew business. That’s really what occurred here. If barrelage was X, it now became Y. It’s an industry change that affected the singular business. It’s affecting many mid-size firms that are starting to get hurt for the same reasons. It’s not that they did anything wrong. In fact they did everything right. But the industry and market changed.”
Buyers are showing an interest in the company.
“I know there are potential buyers out there and we’re embarking on conversations with many of them as we speak,” Egelston said. “There is no shortage of interest from companies and groups of investors.”
The new owner will likely need to have working capital to put in canning equipment, Egelston said. Both he and Withee noted that the new owner will want to run the brewery to its full capacity of 75,000 barrels a year, either with its own product or through contract work, “co-packing” for other brewers. Smuttynose had been running at 50 percent capacity for the past year.
“Nothing would make me happier than to be able to pass the baton to the next occupant of this facility and the next steward of this brand and see them successful,” Egelston said. “We’re committed to doing everything we can do to help with that process.”
Hayseed Restaurant is profitable and after two-and-a-half years and has a loyal clientele, said Joanne Francis, Egelston’s partner. The 13-acre campus has great potential for events, gardens and land that could be used to grow food for the farm-to-table restaurant.
“This is a brand-new, beautiful facility that has just started to lift off,” Francis said
Provident and Smuttynose are working cooperatively to make the most attractive package for potential buyers. Provident is willing to provide financing to the right buyer, Egelston is willing to be part of the transition to new ownership and the Smuttynose staff is committed to the success of whoever buys the business.
“This is not a fire sale,” Withee said. “The auction itself is transference to the new owner with a lot of help along the way…. You get cooperation from the former owner, you’ve got potential financing and institutional knowledge that can be transferred and that rarely happens.”
“What comes out of the foreclosure auction is a buyer that has help and a clean slate,” Withee said.
Both Egelston and Francis became emotional as they talked about the Smuttynose staff’s reaction to news of the sale when it was announced internally last Tuesday.
“The outpouring of support from the staff really means a lot to both of us,” Egelston said. “These are people we’ve worked with, in some cases for decades.”
They said in some ways there was relief at the lifting of an “aura of uncertainty.”
“Now they can see a path forward and everyone can pull together toward a successful sale and transition,” Egelston said.
New Hampshire Gov. Chris Sununu offered words of encouragement to the company and its employees.
“Smuttynose’s strength lies in their dedicated and engaged employees,” Sununu said.
Egelston and Francis, who are deeply involved in philanthropic work in the state, said they were also moved by the kind words they received from community members following the announcement of the auction Tuesday morning.
“It’s what we all live for,” Francis said. “To be good friends and loved and well thought of and to be recognized for your hard work and the good you’ve done.”