Constellation Brands is acquiring another company, in one of the largest buys ever for an American craft brewer.
The Victor-based alcohol beverage company announced on Monday that it plans to spend $ 1 billion to acquire Ballast Point Brewing & Spirits, a fast-growing San Diego-based craft brewer. The deal is expected to close by the end of the year, and was pursued after Ballast Point began exploring an initial public offering about a month ago, said Constellation Brands CEO Robert Sands.
“We were able to see what kind of performance they had, their margins,” he said. “We were able to ascertain that it is the crown jewel of the craft space. We began discussions with them and were really able to talk them into doing the sale deal instead of the IPO.”
He said Ballast Point is a major player in the fast-growing craft brewer industry, projected by the Brewers Association to account for about 11 percent of the $ 101.5 billion national beer business to about 20 percent over the next 10 years.
Meanwhile, Ballast Point is on pace to sell nearly 4 million cases this year, which would mark a 100 percent year-over-year growth. Net sales are expected to total about $ 115 million this year, Constellation said.
The deal for Ballast Point is the fourth major deal for a Californian craft brewer this fall and follows purchases by Anheuser-Busch InBev SA/NV, Heineken NV and MillerCoors LLC. Financial details are not available on all of those deals.
“There is a reasonable expectation that craft brewing, especially when we talk about microbreweries, have the potential to be the next cupcake bubble,” said George T. Conboy, chairman of Brighton Securities. “There are a lot of them. Is the market getting crowded? It does not appear to be, but I think it is also fair to expect that the consumer’s appetite for craft beer is not unlimited. It may be bigger than the market (that) exists right now. There may be potential growth, but the market for no product is unlimited.”
Ballast Point Brewing & Spirits has four production facilities in the San Diego, California area. (Photo: Provided by Ballast Point Brewing & Spirits)
Ballast Point was started by a small group of home brewers led by Jack White that has grown into a 500-employee company producing more than 40 different types of beer in addition to various labels of rum, gin, vodka, whiskey, liqueur, canned cocktails and other items. A six-pack of Ballast Point India Pale Ale lists for $ 10.49 on Wegmans Food Markets’ website. Various brands also are available in local bars.
The sale will allow the San Diego brewer to operate as a stand-alone company with its current management team and employees running the day-to-day operations after the deal closes.
“We started this business nearly 20 years ago with a vision to produce great beer that consumers love and to do it the right way,” White, founder of Ballast Point Brewing & Spirits, said in a statement. “To achieve that vision, we needed to find the right partner. The team at Constellation shares our values, entrepreneurial spirit and passion for beer, and has a proven track record of helping successful premium brands reach the next level of growth and scale.”
The number of craft breweries across the country has increased dramatically since 1985, when there were only 110, according to the Brewers Association. In 2014, the figure increased to 3,464. In New York, craft breweries do about $ 2.9 billion in annual revenue while producing roughly 950,000 barrels a year.
New breweries also have entered the Rochester area in recent years.
Knucklehead Craft Brewing,The Lost Borough Brewing Co. and others have joined such long-running mainstays as Rohrbach Brewing Co. and CB Craft Brewers. The later expanded two years ago to increase production by 115 percent. Meanwhile, Three Heads Brewing has been working on its own $ 4 million expansion project.
The country’s sixth-largest beer maker also has tapped into the craft scene. North American Breweries, the parent company of Genesee Brewery, currently operates two craft breweries: Magic Hat Brewing Co. in Vermont; and Pyramid, which operates in Seattle, Washington and Portland, Oregon.
Genesee launched a well-received Salted Caramel Chocolate Porter recently. The English-style Porter and Hedonist Artisan Chocolate blend is getting a larger release by the brewer, which is planning to sell it in Cleveland, Pittsburgh and other areas of the Northeast soon. The company also produces a Scotch Ale and a Pilot Batch Imperial Black IPA.
Ballast Point has its own lines of IPAs, pale ales, and stouts in addition to a very popular Grapefruit Sculpin. Sands called the grapefruit beer Ballast Point’s hottest brand and its most “spectacular.”
“With the kind of distribution muscle that Constellation Brands brings to the game, you can expect to see Ballast Point in a lot more bars and restaurants,” Conboy added. “You can expect to see their volume rise significantly. They can scale it up rapidly.”
Constellation became the nation’s third-largest beer manufacturer after acquiring the Grupo Modelo brand from Anheuser-Busch InBev for $ 5.3 billion in 2013. In August, it picked up the Meiomi line of Californian wines and took a stake in Chicago-based Crafthouse Cocktails.
The Meoimi line was noted at the time for its expansive growth, producing 550,000 cases in 2014 with projections of 700,000 this year. The deal for Crafthouse Cocktails came through a program designed by Constellation to invest in emerging but smaller-scale opportunities relating to the alcohol beverage industry.
The deals are nothing new for Constellation, which has a long history of acquiring different wine, beer and spirit makers and related businesses. Constellation now operates more than 100 brands, including the Robert Mondavi line of wines, Svedka Vodka, Black Velvet Canadian Whisky, Corona Extra, Modelo Especial beer and many others.
Buy Photo Constellation Brands Inc. on Wednesday reported very favorable earnings for the first quarter of fiscal year 2016. (Photo: Carlos Ortiz/@cfortiz_dandc/staff file photo)
The company employs about 7,700 people with a majority of workers in the U.S., Mexico, Canada, Italy and New Zealand.
“The whole idea is to have growth brands — like Ballast Point that we just bought, like the Meoimi brand we bought a few months ago — to continue to fuel growth, if we don’t buy anything,” Sands said. “We got plenty of room to buy more brands and businesses, if we think it is strategic.
“It’s all about having a very strong growth portfolio in the first place.”
Shareholders have been rewarded with impressive returns in recent years. Shares of Constellation were $ 11.05 in the spring of 2009. Shares were up $ 3.06, or slightly more than 2 percent, to $ 135.26, at the close of trading on Monday. They also have been among the best performing stocks by a Rochester-area company over that time.
“They are kind of in what I call, ‘Acquisition, 2.0′ over at Constellation,” Conboy said. “They have just done a wonderful job buying the right things, integrating them into their operations and driving more growth out of them.”
TCLAUSEN@Gannett.com
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