Here’s something that was on the minds of the assorted brewers at the Great American Beer Festival: Money.
In the six weeks leading up to the late September event, three separate private equity transactions in the craft space stirred up conversation: Uinta Brewing, based in Salt Lake City, Utah., sold partial ownership to The Riverside Company. New York’s Southern Tier Brewing sold a partial stake to Ulysees Management LLC, a diversified investment firm with over $1 billion under management, while Atlanta’s Sweetwater Brewing sold a minority interest to TSG Consumer Partners.
So speculation flew about the steady stream of private equity money flowing into craft — but conclusions about whether the floodgates will open fully were hard to reach, especially when looking at the next year.
Many brewers at the event expressed concerns over the long-term commitment from private investors, but agreed that more deals are likely on the way.
As for the investment pros, they weren’t exactly predicting a run.
“We see a moderate increase in deal activity by both strategics and financial sponsors, as well as a general higher level of dialog amongst craft owners around succession planning and exits, particularly as the operating environment continues to get more competitive,” said Townsend Ziebold, the managing partner of First Beverage Group, which advised on last year’s Boulevard acquisition and this year’s Southern Tier transaction.
Ziebold said he didn’t see many major events in the next year.
“Most craft owners will likely not pursue liquidity options in the next 6-12 months, although we note today is a ‘sellers’ market and this may not continue as the larger strategic buyers complete their M&A strategies and the number of craft owners seeking liquidity in the future increases,” he wrote to Brewbound.
Still, while Ziebold believes there will be a “small number of both strategic and financial sponsor deals” in the coming months, he doesn’t think the inpouring of private money will drastically change category dynamics.
“We do not think it radically changes the landscape,” he wrote. “It simply means there is a larger availability of partners for craft owners seeking liquidity. It is still very much about picking the right partner for your company. The future of private equity and family offices in the craft space will very much depend on how well or not well some of these early deals are managed.”
But brewers go to the event less for money than for medals — although awards may be equally hard to win, noted Brewers Association economist Bart Watson. In looking at the event, Watson sought to answer a surprisingly popular question: “Why do some states routinely have more GABF medal winners?”
To understand that, a little background is necessary: According to the analysis, “a random beer” has a 4.8 percent chance of taking home a medal at the annual beer fest, which is held in Denver, Colo. each year (that’s lower than the Fall 2013 acceptance rate at Stanford University, the most competitive school in the country)
But the chance of winning a medal does vary from category-to-category, based on the number of entries in a given contest. An American-style dark lager, for instance, has a 15.8 percent chance of hitting pay dirt while any random American-style IPA has only a 1.1 percent chance at glory.
Knowing this, the BA was further able to predict, with relative accuracy, how many medals the participating breweries in any one state would win. Perhaps unsurprisingly, the states with more breweries (and more entries) took home more medals.
“While states with more breweries and more entries are winning more medals, there aren’t many states that are significantly outperforming others,” Watson wrote. “On the flip side, to get a correlation that high, very few states are underperforming.”
Additionally, Watson noted, the further away from Denver a brewery is, the less likely it is to submit a beer for judging.
Two weeks before that bit of analysis, another big prize, distribution, was being discussed at the 77th annual National Beer Wholesalers convention in New Orleans.
There, a panel consisting of No-Li Brewing founder John Bryant, Devils Backbone founder Steve Crandall, Lagunitas founder Tony Magee and MillerCoors CEO Tom Long tackled a variety of industry issues.
“It’s a dog fight,” said Long, referring to the number of new competitors that his company is facing. “Folks are going to define who they are by who they’re not.”
Long’s remark was aimed at the efforts both craft brewers and the Brewers Association have made to help consumers distinguish between products sold by independently-owned beer companies and larger organizations like MillerCoors.
“The best ones define who they are,” he said.
Magee took a different approach with his response, choosing instead to comment on the efforts being made, by some craft brewers to create franchise law carve-outs for small producers.
“The whole notion of undoing that is a competitive strategy that I don’t agree with,” he said to applause. “The idea of trying to change the underlying landscape is a foolish diversion from doing what you should be doing…making relationships.”
The other craft brewers defended Magee.
“We need the three-tier system,” said Bryant. “If we didn’t have it, No-Li wouldn’t be able to go to market and succeed.”
Bryant advocates for creating clauses
in wholesale contracts that create “mutual accountability.”
He elaborated on that idea in a follow-up interview.
“You need mutual accountability, in writing, that allows both parties to assess the strength of the brand and the relationship at the end of the year,” he told Brewbound.
He suggests that craft brewers, instead of spending time on attempting to change franchise laws, work to build out-clauses and performance expectations into their wholesale contracts.
The process of strengthening wholesale partnerships is becoming more difficult as craft brewers continue to flood the market with new offerings – there’s now more than 13,000 beer labels, noted NBWA president Craig Purser.
“You have so many suppliers,” Bryant said of craft-savvy wholesalers that sell a broad portfolio of offerings. “You can’t keep them all happy.”
“Work harder,” said Crandall. “That’s all you got to do.”