Whisky: Financing the journey

For those operating in the world of Scotch whisky, there is a broad - and often perplexing – array of financing options available. This is perhaps not surprising given its status as a high value, aspirational, asset which is now thought to contribute 3% of Scotland’s entire Gross Value Added (GBP7.1 billion) and account for 77% of all Scottish food and drink exports. Distilleries typically need high levels of investment in the first few years with many not breaking even for 4-5 years after incorporation. 

It is an industry that demands a lot of resources too: the cost of setting up and maintaining distilleries and maturing warehouses (with enough space, access to good water and electricity and an ability to dispose of waste); buying expensive distillery equipment; storing the product (the minimum legal maturity requirement for Scotch whisky is at least 3 years, but ideally 8 to 10); and then marketing and distributing your product around the world, to name a few.

Those looking to break into the market by establishing a new distillery might consider seed funding or angel investment. To develop or refurbish a distillery, or perhaps open a new visitor centre, you will need to think about investment or development real estate finance. And once you finally have your product casked and maturing, you might wonder if there’s a way of unlocking the value of your product to allow you to invest in growing your business. Being aware of, and successfully navigating, the available options is key to being successful in the sector, no matter which stage of the life-cycle you’re at.

This is particularly pertinent at the time of writing, as we enter a new era that has seen the unfreezing (and rise) in UK alcohol duty by the Chancellor in the Autumn Budget, the dip in demand from struggling economies in Asia (including China) and the looming threat of international trade wars (including possible re-instatement of import tariffs in the critically important US export market). Figures for H1 2024 reflect this difficult environment: the Scotch Whisky Association reports that exports were down 18% in value and 10% by volume, compared with 2023, with the volume of fine and rare single malts sold at auction falling significantly.

Below we discuss some of the financing opinions available by highlighting a few case studies. Feel free to contact Allan Leal or Craig Hunter, members of DLA Piper’s Scotch whisky practice, if you would like any further information.

 

Seed funding and angel investment

The whisky market is dominated by a few behemoths: Diageo, Pernod Ricard, Whyte & Mackay, Edrington, Suntory and William Grant & Sons between them own a majority of Scotch whisky brands.  But if you are looking to break into the market and raise the capital needed to set up a distillery or related company in the sector, where do you look for funding? Options include seed financing, angel investment and crowdfunding.

GlenWyvis was Dingwall’s first distillery in 90 years, made possible by offering the public an opportunity to buy shares in the venture. GBP2.6 million was raised by the company’s first open share offer in 2016, and to date a total of GBP3.7 million has been raised through crowdfunding. Shares in the third share offer were offered for GBP50 with a minimum option of five shares totalling GBP250. As well as owning part of the distillery, investors get exclusive member bottlings, investment rewards and a 20% discount on all sales. GlenWyvis currently has 3,625 shareholders – 28% of whom live close to the distillery, 44% in the rest of Scotland, 16% in the rest of the UK and the remaining 12% overseas.

Bevvy, a whisky discovery app founded in Islay in 2021, allows users to scan bottles of whisky and receive information like tasting notes and dynamic pricing data (the app scans your picture against its whisky database). In early 2024, Bevvy closed a GBP1 million seed funding round. Investors included Scotland-based angel investors (Scottish rugby stars Pierre Schoeman and Duhan van Der Merwe among them), existing shareholders and investors from as far afield as Denver, Colorado. The company expects to open a Series A round in the latter part of 2025.  

Bruichladdich, also based in Islay, was bought by Mark Reynier in 2000 after he put together a consortium of investors to invest in the mothballed distillery. He grew the sales of the brand from zero to around EUR15 million, before it was bought out by Remy Cointreau in 2012 for EUR58 million (EUR68 million). However, the recent appointment in November 2024 of receivers to another of Reynier’s projects, Waterford Whisky, highlights the fiscal difficulties many distilleries face, despite (in that case) HSBC Invoice Finance UK Limited having providing Waterford with a EUR45m facility agreement to replace its existing debt. A drop in US sales was blamed.

And on Loch Fyne, plans have been submitted for a EUR25 million distillery at Inveraray Castle, which will require development finance in order to fund the construction of a 950 square metre distillery and visitor centre, due to commence early 2025. 

 

Venture debt, growth finance and development grants

If you don’t wish to divest equity in your company, you may prefer to enlist the help of a bank to provide you with some growth finance/venture debt in order to get you up and running or seek a government grant.

Virgin Money’s Commercial and Trade Finance team recently teamed up with UK Export Finance to provide Glasgow-based Ferguson Whisky Limited with a GBP450,000 funding package to purchase whisky stock, expand its operations and meet growing international demand. Ferguson Whisky provides a range of services, including the investment in new make whisky or aged stock, and supporting customers through the bottling process, making it easier for enthusiasts and investors to navigate the market. The deal included the issuing of a General Export Facility (GEF) loan guarantee which covered 80% of the financing. The GEF product is a flexible government-supported scheme that helps UK export businesses – especially SMEs – access working capital facilities, helping to improve cashflow or speed up international trade growth.  

Up in Caithness, a GBP5.9 million project is currently underway to create a new whisky distillery within the former derelict mill at Castletown, to be known as Stannergill Distillery – a GBP2 million funding package from HSBC UK, along with a GBP250,000 investment from Highlands and Islands Enterprise (HIE) and a GBP500,000 grant from Historic Environment Scotland, are financing the renovation works there. HIE also awarded a GBP246,000 grant to nearby Orcadian distillery, Deerness, earlier in 2024.

 

Reaching maturity

And once you have been producing for a few years and you have stock maturing in barrels, what options are available to you?

Artisanal Spirits Company (ASC), the owner of whisky brands including The Scotch Malt Whisky Society, has a strategy of investing in whisky stock and has built an inventory of GBP100 million in cask spirit stock, with the aim of generating maximum value through maturing and bottling whiskies (which ultimately deliver a multiple on the cask value), with estimated future retail value in bottles of almost GBP0.5 billion. With cask levels now reaching an optimal level, the ASC say they have reached a turning point in the cash investment requirement in the business. Historic levels of investment in whisky stocks are no longer required as they look to transition to purchasing on a replacement basis to satisfy future growth demands, representing a positive inflection point for the cash profile of the group.

The ASC has been a customer of RBS/NatWest since 2015 and has a revolving credit facility with the bank. It is typical in asset-based lending for the facility to include a “Springing Event Test”, which means no financial covenants are tested while the Group maintains an appropriate stock balance. DLA Piper’s Edinburgh Finance team advised RBS on ASC’s increase and extension of its revolving facilities in 2022, which allowed the group to continue to pursue growth internationally. Using a combination of investor support and the bank’s facilities, ASC has been able to invest in long term stock holdings, a wide variety of cask inventory, the creation of subsidiaries in China, Japan and Australia, further development of its US sales and the purchase of property, including flats for members’ use near The Vaults in Leith, Edinburgh.  

Whisky blender, Compass Box (founded in 2000), secured a GBP35 million asset-based lending facility from Santander in October 2024 which will allow it to plan new warehousing facilities, invest in further inventory, and launch its new core collection. Compass Box is hoping to be able to use Santander’s global network to reach new customers overseas.

Then there are alternative types of finance in which new technology is playing a part, such as those offered by fintech business, Ferovinum, which launched in 2018 with GBP100 million of institutional capital to deploy. Ferovinum buys stock in order to release cash into businesses with a long maturation process and then sells the stock back when it is ready to be sold, turning dormant stock sitting in warehouses into working capital that can then be reinvested. Customers can log into the platform and upload stock in order to release cash in a matter of days and buy it back when needed. In 2024, Ferovinum and the Borders Distillery Company agreed a GBP35 million funding package, allowing the distillery to grow its business in advance of the release of its single malt Scotch whisky.  

And some distilleries have sought to offset their costs in building maturing stock by installing stills to make gin (which requires no maturation period) and selling sherry or port and then using the casks as part of the maturation process – some of these byproducts have gone on to become very successful in their own right and remain so even when the whisky has started to flow (Bruichladdich with the Botanist, Balmenach with Caorunn and Port of Leith with Lind & Lime).

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