UNO News Net: Craft brewers may be left high and dry by supplier’s money woes

By Josh RubinBusiness Reporter

Mon., Dec. 3, 2018

By this time, Jason Fisher expected the new warehouse he’s renting for his Junction-area brew pub Indie Ale House to be a hive of activity, with tanks and other brewing equipment for a long-planned expansion starting to arrive.
Instead, the giant room — at an off-site warehouse in Etobicoke — sits empty and mostly quiet. And Fisher has an $800,000 problem on his hands.

Indie Ale House’s Jason Fisher says he’s worried he may be out $800,000 now that brewing equipment manufacturer DME is in receivership with more than $18 million owed its creditors. (Andrew Francis Wallace / Toronto Star File Photo)

Along with hundreds of other craft brewers across North America, Fisher was stunned to hear the news that DME, a P.E.I.-based equipment manufacturer with facilities in B.C. and South Carolina, was in receivership, with more than $18 million owed to RBC and an unspecified amount to other creditors, including the company’s own 250 employees. The company’s directors have all resigned, and a B.C.-based receiver has been appointed to explore either a liquidation or sale of the company, with offers due by Jan. 7.
“It was shocking. I just couldn’t believe it,” said Fisher. “I’ll survive. But some places won’t.”
According to court filings, DME has built equipment for more than 1,600 breweries in 70 countries. At the Ontario Craft Brewers conference in early November, there was a DME sales booth, extolling the virtues of the company’s products.

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DME, which was founded in 1991, was taken over by Toronto-based venture capital firm Clearspring Capital in 2015, with founder Peter Toombs having a minority stake. The following year, DME bought Abbotsford, B.C.-based NSI-Newlands. While DME had specialized in high-quality but off-the-shelf brewery systems, Newlands did higher-end custom systems. The two names survived as separate brands within the merged company.
Since the merger, according to court papers filed in P.E.I. on behalf of RBC, a downturn in business, combined with low-priced competition, particularly from China, hurt the bottom line. Without an infusion of $5 million, a restructuring wouldn’t have been possible.
Neither the bank nor Clearspring would supply the extra cash.
An RBC spokesperson declined to comment on the grounds of “client privacy.” But in court papers, the bank said it had bent over backwards trying to help DME.
“RBC has been patient and accommodating in all respects,” said the affidavit by RBC’s Gary Ivany.

Neither Clearspring, Toombs, nor Newlands founder Brad McQuhae would comment to the Star. (McQuhae and DME are also still involved in a legal dispute over the price paid for Newlands.)
For his expansion, Fisher opted for a brand new Newlands system. He paid DME in advance for stainless steel tanks and kettles, grain mills to grind malt and some pipes. Some of the equipment has been finished and is sitting in a DME warehouse or on the factory floor. Some of it hasn’t been started.

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“There are so many things that you have to worry about when you’re running a business. But Newlands wasn’t even on the list. A company that was two successful, profitable businesses two years ago, and was backed by a big VC firm? I never even imagined it,” said Fisher, who’s concerned whether he’ll ever see his equipment or money.
It’s a similar concern for Max Meighen, whose brew pub Avling on Queen St. E., had been set to open in February. Meighen, too, was worried when he heard about DME’s financial woes.
“We’ve bought and paid for it. As a courtesy, they were storing it for us until we had a place to put it,” said Meighen, who’s still hoping he’ll see his equipment.
That depends, according to bankruptcy lawyer Alex Ilchenko, head of the insolvency practice at Mississauga-based law firm Pallett Valo. Ilchenko is not involved with the DME filing.
“It really depends on how their contracts were written and whether they can prove they paid for it. If there are emails or bank records, that will help,” said Ilchenko.
It might be harder for people who have deposits, but whose equipment still hasn’t been built, unless there’s a buyer for the whole company — “en bloc” in legal language.
“The best case scenario is if someone buys it ‘en bloc’ and runs it as an ongoing concern,” said Ilchenko.
And the worst case? Could those deposits be gone?
“There is that potential, yes,” Ilchenko said.
Breweries who never had their equipment delivered — or whose equipment was simply never built — have been trying to find alternative suppliers.
“We’ve certainly gotten some requests, some of them more urgent than others. We’re doing what we can,” said Jessica Criveller, operations manager at Niagara Falls, Ont.-based Criveller Co.
Criveller’s company supplies brewers, wineries and even olive oil producers with large stainless steel tanks and other parts.
They’d gladly take on new customers. Still, given DME’s size, there’s a limit to what smaller companies can do.
“We’re taking on the business that we can handle,” said Criveller, who estimated her company is roughly a third the size of DME.
As for Fisher, the expansion plans might be delayed, but he says his brewery will survive. Others might not be so lucky. And that makes Fisher as bitter as one of the hoppy Instigator IPAs he serves at Indie.
“RBC made $12 billion in profits this year. But they’ll still get some of their money out of this situation. The workers might end up getting some government help. The auto industry might get some help. But small businesses like mine? We’ll get nothing,” said Fisher.
Josh Rubin is a Toronto-based business reporter. Follow him on Twitter: @starbeer