There must be something in the air…
In September alone there were six craft beer acquisitions and investment deals announced. Let’s count them up: Golden Road, Saint Archer, Dogfish Head, Cisco, Lagunitas and Virtue Cider. That’s more than one deal per week!
Oh, right, and that whole talk about the AB InBev/SABMiller acquisition.
To get a little perspective on this flurry of activity and how it’s going to affect things moving forward, I connected with my friend and Brewbound.com editor, Chris Furnari, for a short Q&A.
Hopefully, this will help you make a little sense of all this madness.
So, Chris, what’s going on here? Why are all these deals coming out now? It’s like the lid just blew off.
Well, you’ve got a lot of different things culminating at once. I think when a few brewery owners go and execute these deals it causes others in the space to question how much their businesses may be worth. I think you’re seeing some of that. You’re also seeing some of these brewery owners get to certain points in their careers where this is the logical next step. You’re seeing some of that as well. And right now is just a really great time to be a craft brewer that’s interested in a transaction. The multiples are higher than they’ve ever been. There’s an incredible amount of interest from both investors and from consumers. So, it’s just the perfect storm of factors and I think that’s why you’re seeing so many deals get done so rapidly.
Is this the tipping point? Are we going to see more and more of these deals start hitting now?
I think you’ll continue to see a lot of activity for another 12-18 months; but look, the bottom line is there’s only a certain amount of buyers out there and that pool is shrinking. AB is only going to buy so many breweries, MillerCoors is only going to buy so many breweries. Private equity is going to see the multiples that are being paid for some of these breweries and say, you know, too rich for our blood. So I think the deal activity will continue, but… we saw six deals in September. I don’t know that it could get much faster than that.
So, I guess the real question is are all of these buyouts and investments going to change the game for small crafts and mid-large indies?
Absolutely. I think what you’re seeing right now is the bigger craft players–maybe the ones that were regional or just beyond regional, and obviously the national craft brewers–you’re seeing them become larger entities. They have more resources behind them. Just look at California as an example. You have two smaller craft players that were very fast growing—Saint Archer and Golden Road—now owned by AB and MillerCoors. You have a very large craft brewer—Lagunitas–who is now 50% owned by Heineken International. And you have Firestone Walker with Duvel. So just in California alone there are four very well-resourced players with a significant foothold in craft in that state.
So, yes, brewers that don’t have those partners are going to be challenged. There’s a lot of money coming into the space and that’s going to affect how these businesses operate. It’s going to impact the way they do business. And it’ll probably have a pretty significant impact on the breweries that don’t have those partners behind them.
You think the macros are going to push on the pricing game with their new craft acquisitions?
It’s tough to say. It’s everyone’s first guess of what’s going to happen. I wouldn’t feel comfortable saying definitively whether they will or they won’t. What I can tell you is that if you break down the craft space right now you probably have something like 15-20 national or soon-to-be national brands and those guys are going to be in a better position to take price, if they need to, and suppress it a little bit. If they’re looking to offer a lower cost item they can do that more effectively then say a mid-size regional player. They have economies of scale that enable them to do that. And they’re playing a different game. They’re competing at a totally different level now.
There will certainly be some big pressures on the guys in the middle–both upward and downward pressures. So you’ll have the 20 or so national guys that can compete on things like pricing. They have better access to ingredients, raw materials, they’re going to be able to operate more efficiently. And then the guys that are smaller, they’re going to be nipping at the heels of the guys in the middle for tap handles. They’re going to be a little more local, a little more artisanal. I think that’s going to make it difficult for the guys who are stuck in the middle that are trying to compete.
So what about AB InBev and SABMiller… Think that deal is going to happen?
Yeah, I don’t see why it wouldn’t. Grupo Modelo was pretty much the test run for being able to get this deal done. The 3G Capital guys who are behind AB are very motivated financial experts and this is what they do. Their specialty is taking over businesses. So I don’t see why it wouldn’t get done. I just read something from Bloomberg that said they’re putting the finances together. It’s moving forward. I think they’re expected to make a formal bid this week.
How big of an impact is that going to have?
In the US, I don’t think it’s going to have too big of an impact, in the short term at least. This is definitely more of a global play. I truly believe that AB’s real interest in the US for regaining market share is in craft.
Before we wrapped up our conversation, Chris hit on one last topic that I’ve been thinking about a lot lately as well. It seems that most of these craft brewers that are getting bought out or invested in are trying to disguise it. They’re making excuses for being successful. It makes sense from a consumer standpoint, but we’ve got to put this in perspective.
“I really wish brewers would just embrace these sales a bit more,” said Chris. I agree wholeheartedly, by the way. “And I know that’s tough because for years they’ve been doing the whole David versus Goliath thing and they’ve been really playing up that messaging. But you know what, these are entrepreneurs. They worked their whole life for this. They should be proud that they’re getting paid for their life’s work. In tech or in the non-alcoholic beverage space, for instance, you’re applauded when you sell your business. In craft, Dogfish sells 15% to a private equity firm and they’re like: well, we’re going to try to purchase it back in the future. They only sold 15% and they’re already bracing for the self-defense mechanism that you have to put up because consumers are going to come bash you. I’ve never understood that. I’m waiting for the day when someone says: yeah I sold my company for $500 million dollars and I’m proud of it.”
It’s a really valid point. These brewery owners are making decisions. They need to stand behind those decisions. As consumers, we have the ability to vote with our dollars. We’re resourceful, we get it. Those who want to keep buying products that are made by breweries like Goose Island or Lagunitas or Golden Road can do that. And others who want to continue buying independently-owned products, they can do that too. There are certainly more than enough options to go around.
So, the big question is: who’s next?
Want to keep up with all of these craft beer acquisitions and investments in real-time? Tune into Chris at Brewbound.com.