Craft M&A Outlook

Dear Client:

Some shaken up after Monday’s A-B Goose Island announcement. From the trenches, we’ve heard two opinions: 1. It’s a game changer. 2. It’s not news: Goose Island “sold out” back in 2006 with its allegiance to A-B-staked Craft Brewers Alliance.

We happen to think the all-out buyout is a sign of the changing craft times. This sort of thing could open the floodgates for healthy craft brands that are financially distressed to sell to macros, big private equity, et al. After all, Goose Island makes solid beer. They have a lot of craft cred.

In fact – we can’t substantiate, for obvious reasons – but we heard a lot of sales speculations at least in the California field this weekend at Craft Brewers Conference. Many pinpointed Lagunitas’ momentum and expansion as ripe for the picking; one thought their of-late displayed affinity for Anchor might tease something; another thought a macrobrewery might have its sights set on them. [Update: Lagunitas’ Tony Magee sent an email to folks say, “if it was true, I wouldn’t have to sign the loan documents that had just arrived to borrow an additional $10,000,000 for new and bigger brewing equipment! I can’t tell you how relieved I was. The first thing I did was cancel the Brewhouse equipment and instead order a new Aston Martin DB9 [I’ve always wanted one], and I called The Hair Club for Men too…. But then it hit me; How come I wasn’t involved in the sale? I seems I should have been part of the negotiations, like, I dunno… maybe I just missed the meeting or something.”)

NAB’s equity sponsor, KPS Capital Partners, is sitting on plenty of dry powder to execute all cash transactions (something to the tune of $2 billion).

At the end of the day, who doesn’t have a price? Precious few, it seems. Even Goose Island chief John Hall told us he’s not terribly worried about a backlash from the sale, as what matters most to most of their fans is the beer.

LESSONS FROM THE ‘MOST SIGNIFICANTLY FAILED BREWERY’: NEW ALBION

A CBC session with New Albion founder and craft pioneer Jack McAuliffe provided a “long view of the big picture” of the craft industry, as the segment was titled. New Albion, as you know, was founded in 1976. The brewery folded in 1982 because it was before its time. As Jack put it, Carter was president and the government was offering treasury bills at an unusually high rate of return. Nobody would invest in a low return business like a brewery when you could have full faith and credit of the US government behind a high rate of return. But of course, Jack didn’t really fail. The brewers of the 1980s – esp. Ken Grossman – are seen as his protégés. And his passion is something some of the most long-active brewers share.

In fact, “Ambitious Brew” author and beer historian Maureen Ogle demonstrated just how that passion translates into longevity. Having chronicled 150 years of American microbrew, she has a special lens with which to view current industry issues, like the hot-button topic of when momentum might hit a wall.

“People who failed did so because they pursued growth mindlessly,” she said. Companies that didn’t go out of business, however, “thought very carefully about their place in the world,” versus mindless growth. She pontificated: Kim Jordan hasn’t sold the company because she’s trying to show what a responsible corporation looks like; Jim Koch set out to prove it possible to have a corporation with heart and soul.

But she went into most depth chronicling Leinenkugel’s evolution. The Wisconsin-based brewery was founded well over 100 years ago to survive prohibition and the “pure chaos and hell” of the 1950s-’80s, when things were so awful in the industry that 600 breweries dwindled to about 45 in the late 1970s. The reason Leiny sold to Miller and are still around is because, Jake Leinenkugel told Maureen, “If we didn’t do it, there would be no Leinenkugel employing people in Chippewa.” Their dedication to employing the town guided everything they did. They signed a deal, in the end, that left the brewing family mostly autonomous.

CBD BRIEFS:

KONA BREWING COMPANY is bringing its limited-release Wailua Wheat to the East Coast by May. The Aloha Series beer is in its fourth year of production on the mainland. Its flavors come from real passion fruit and generous amounts of Hallertau hops.

BA’s 2011 ACHIEVEMENT AWARD winners announced at CBC include Jennifer Talley of Squatters Pub Brewery/Salt Lake Brewing Co., who won the Russell Schehrer Award for Innovation in Brewing; Dan Kopman of St. Louis Brewery/Schlafly, who won the F.X. Matt Defense of the Industry Award; and John McDonald of Boulevard Brewing Co., who won The Brewers Association Recognition Award.

PENN-BASED IRON CITY Brewing Co. is getting acquired by a New York-based private equity firm, according to the Pittsburgh Tribune-Review [http://www.pittsburghlive.com/x/pittsburghtrib/news/pittsburgh/s_729665.html#ixzz1I03PaTRn]. Iron City has brewed several brands, including Augustiner Lager.

SAN DIEGO’S GREEN FLASH are opening Missouri and Kansas in July. New Mexico will be close to the same time. “Our reasoning is because they are on main trucking routes between states we are currently in and will ensure more frequent deliveries,” says sales chief Jim Kenny.

Until tomorrow, Jenn

“In three words I can sum up everything I’ve learned about life: it goes on.”
Robert Frost

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