The Most Common Reasons Craft Breweries Get Bought Out
Last month we wrote about the SABMiller and AB Inbev merger, valued at $146B, which has now been given the green light, albeit with country specific caveats and restrictions to ensure competition is still present in each market. The new company is aptly named Newco.
Now to add to this news, in mid November another large acquisition took place. This time it wasn’t amongst two mainstream beer conglomerates but involved a craft brand. Ballast Point, from San Diego in California, announced that it was selling to Constellation Brands for roughly $1B USD. While Constellation isn’t a household name it is a publicly traded beverage company which owns Mexican brands Corona, Modelo, and Pacifico. To give you a sense of scale, Corona accounts for approximately 5% of beer volume sold in the Australian market – that’s 1 in every 20 beers consumed in Australia. What the future holds for Ballast Point is unknown, but it is likely that they will have greater reach and distribution, maybe even more of their beer making its way to Australian shores.
Each time we read of a craft brewery being bought out we often ask ourselves why the owners have decided to sell, and so here are our top 4 most common reasons:
1. Scaling – acquisitions often mean that a small craft brewery will have access to larger production facilities which enables it to capitalise on economies of scale, making the beer cheaper to produce.
2. Pay Day – the owners have either had enough, are retiring or following their 5 / 10 / 15 / 20 year plan and selling up. In all honesty, if they have worked hard to build a business that someone wants to buy/pay a premium for then we think that’s fair enough.
3. Distribution & Reach – having access to a large corporation’s network can allow a brewers goal of mass reach to be attained more quickly.
4. Raising Capital – some breweries simply need cash injections. This may be because they have hit hard times or have been poorly managed, or just want to get to the next rung on the ladder.
As we’ve mentioned, for the near future, mergers and acquisitions among beer brands, in particular craft beer brands will be part of the landscape. Craft beer is in growth worldwide and so makes for an attractive acquisition. Oh, and craft beer is just plain awesome so who wouldn’t want to get in on the action.