John Reardon, founder of Deep Ellum Brewing has filed a lawsuit against CANarchy Holdco Corp and its majority owner Fireman Capital Partners, a Boston private equity firm. The plaintiff claims that CANarchy has failed to make payments related to the acquisition of the craft brewery and that the buyer has not fulfilled several agreements of the sales contract.
In 2018 the brewing group agreed to buy the Dallas craft brewer at an undisclosed sum. By that time Deep Ellum produced about 45,000 barrels of beer and was one of the fastest growing breweries in Texas. Therefore Reardon started an expansion of the brewery but needed additional capital to finalize it. When selling to CANarchy he could immediately use capacity at CANarchy’s Austin facility, which was planned for 100,000 barrels (117,000 hl) but only used one fifth of it (inside.beer, 12.6.2018).
“Defendants received the full benefit of their bargain” when they bought Deep Ellum Brewing but they “have simply refused to pay” what they promised, the Chancery Court complaint says. On June 8, 2020 the seller failed to pay the buyer an undisclosed sum, according to the lawsuit. The sum was allegedly guaranteed as part of a deferred payment guaranty agreement. Three days later, Reardon notified CANarchy about the default and that the amount had to be paid until June 20, 2020 “but the CANarchy entities have flatly refused to pay.”
“We’ve received roughly half of our payments, not even including the additional possibility of barrel bonus,” Reardon told Brewbound. In addition, Reardon accuses CANarchy to have “intentionally created their own savings on the back end of their acquisition by trimming promised and necessary marketing capital on the front end.”
“It was all smoke and mirrors,” he said. “I mean, I was promised so much, like capacity, capital for expansion, expansion into other states, the fact that I’d still be in control, upward mobility for employees. I mean, you name it. Nothing has rang true.”