AB InBev – Ten Barrel Brewing Co.
In November 2014, AB InBev acquired Oregon-based Ten Barrel Brewing Co. in a deal that (as with the company’s purchase of Elysian) places another highly regarded West Coast brewery under its control. This transaction has been reported as a 100% sale and will move Ten Barrel outside the definition of a “craft brewery” under the Brewers Association definition. More importantly, the deal is a signal to the craft beer market that AB InBev is still looking to acquire well-received fast growing craft brands. It also demonstrates that, while many brewers are seeking alternative transaction structures like ESOPs, private equity deals, or stock-based joint ventures with strategic partners, an all-cash exit will still be the preferred structure for some, notwithstanding that the deal might be perceived as a “sell-out” by some craft beer drinkers.
SweetWater Brewing – TSG Consumer Partners
In the most recent of three minority sales to private equity firms during this period, SweetWater Brewing sold a minority stake to TSG Consumer Partners in September 2014. From a statement by the Company, the transaction was undertaken to achieve liquidity for the existing investor pool. The Company also pledged that “operationally speaking, SweetWater will remain unchanged whatsoever, and we will continue business as usual as we strive to keep making the best beer we possibly can.”
The structure of this transaction as a minority purchase, similar to the two deals described below, shows that private equity firms are increasingly willing to invest in craft breweries as a minority investor, perhaps protected by certain contractual shareholder exit rights and board seats.
Southern Tier Brewing – Ulysses Management LLC
In September 2014, Southern Tier Brewing announced that it would sell a minority stake to private equity firm Ulysses Management LLC. There has not been much publicity about the transaction since its announcement and, in most cases for deals of this type, no news is good news.
While the most salient component of this transaction was its structure as a minority investment, it is an example of a string of private equity deals in the craft beer industry by East Coast breweries – a partial echo of the apparent ESOP trend in Colorado. Is there an explanation for this trend, or is it simply a statistical anomaly given the small sample size? Are private equity firms, which are concentrated in major East Coast cities, courting more breweries closer to home? Do East Coast breweries feel more of a cultural fit with these firms for some reason? There are more questions than answers for now, but it remains an interesting trend.
Uinta Brewing – The Riverside Company
Also in September, Uinta Brewing announced that it had sold a stake to The Riverside Company. As with the other private equity deals above, the existing owners of Uinta Brewing retained a financial interest in the company. The company’s press release also announced a new CEO simultaneously with the transaction. Other terms were not disclosed.
Harpoon Brewing ESOP
In July 2014, Harpoon Brewing announced that it was selling 48% of its stock to a trust in an ESOP transaction. As with the Odell Brewing ESOP, the new trust established for Harpoon employees owns less than 50% of the outstanding stock.
The minority-ESOP transaction structure used by Harpoon Brewing has emerged over the past year as the preferred ESOP option of craft breweries. This trend is likely to continue, as this vehicle produces some long-term liquidity for owners, achieves the public relations benefit of being employee-owned, and avoids a change-of -control.
There are 17 transactions described above — three ESOPs, five private equity investments, three buyouts by AB InBev or SABMiller, four deals between craft breweries (or other privately held beer-related businesses), and two investments involving international brewing companies other than AB InBev or a MillerCoors affiliate.
Carl Katz, COO and CFO of the Bruery in Placentia, California, remarks in light of these transactions: “There’s never a dull moment in the craft beer world. Regardless of whether a brewery might be part of a transaction like there has been recently, these deals are likely to change the landscape. Any brewery that wants to have an impact is going to take a look at how they make, market, and sell their product.”
This list of transactions, while only a snapshot of the past year, shows how quickly the industry is evolving and illustrates the options available to a brewery considering a liquidity transaction.
Kyle Leingang is a corporate attorney in the Southern California office of Dorsey & Whitney, LLP. Kyle’s law practice includes representing craft breweries and investors in M&A and financing transactions, including ESOPs. Kyle is also a certified BJCP judge and avid homebrewer. Kyle can be reached at [email protected]