Ballast Point Brewing and Spirits will be bought by Constellation Brands Inc. in a deal worth $1 billion. Based in Victor, New York, beer conglomerate Constellation sees a tremendous opportunity to increase its craft beer business by adding California’s largest craft brewer to its portfolio.
Yet, it isn’t just the big beer companies trying to buy up the small ones. In a previous Inquisitr report, Anheuser-Busch InBev and SABMiller were in talks to merge. Should the two combine, the newly created company would be the largest beer company in the world.
Ballast Point, based in San Diego, was founded by a group of amateur brewers in 1996. The company brews 40 styles of beer including Sculpin IPA and Sea Coffee Vanilla Imperial Porter. Of the largest craft brewers in the country, the company ranked number 31 in 2014 according to the Brewer’s Association.
As reported by Bloomberg, Constellation Brands is a $26 billion U.S. distributor of alcoholic beverages which owns more than 100 brands including Mexican imports Corona and Modelo Especial. In addition, Constellation markets China’s Tsingtao, Germany’s St. Pauli Girl, Swedish Vodka Svedka, as well as California’s Robert Mondavi wines.
As craft beers continue to grab market share, many large beer companies are on the hunt to buy specialty craft breweries. Several small California brewers, like Lagunitas Brewing Co., have worked out deals with larger beer conglomerates in the past few months.
In September, Heineken bought 50 percent of Lagunitas and more acquisitions quickly followed. San Diego’s Saint Archer Brewing Co. is now owned by MillerCoors while Golden Road Brewing is currently being purchased by Anheuser-Busch InBev.
The trend has been fueled by slowing and declining mainstream domestic beer sales. The large beer companies, like Constellation, are looking to preserve their market share and seem to have found an opportunity with craft beer brewers.
Over the past few years, the demand for craft brews in the U.S. has been growing at a tremendous pace. In 2010, retail sales of craft beer totaled approximately $8.8 billion; as of 2014, retail sales have increased to $19.6 billion. Craft beer breweries control about 11 percent of the beer buying market, more than twice the share since 2010.
Julia Herz, a spokeswoman for the Brewers Association, has been watching the growth of the craft beer industry.
“Craft is the growth engine of the beer industry going forward. The fact that a Mexican-import company — the other growth segment — made this deal shows the solidity of craft demand.”
With expected 2015 sales at $115 million, Ballast Point is a large part of that growth. San Diego’s craft beer pioneer sold approximately two million cases of beer in 2014 and is expected to hit closer to four million by the end of the year. Since Ballast only sells in 30 states and 10 countries, Constellation has the ability to take the premium brand to a whole new level.
In a press release from Constellation Brands, CEO Rob Sands said, “Along with imports, craft beer is a key driver of growth and premiumization within the beer industry, with craft doubling its share of the U.S. beer market in the last five years.”
According to the LA Times, Constellation buying Ballast Point may be a big risk in terms of acquisition cost. Even though craft beers have seen significant growth, some industry analysts wonder if the billion dollar price tag is just too much.
Bart Watson, chief economist with the Brewers Association, thinks he understands why Constellation Brands would pay such a price.
“It’s hard to digest. But it shows where the growth is heading. They’re willing to pay a high price because they believe they will see continued growth and a return on investment.”
This isn’t Constellation’s first attempt at a craft beer. Along with celebrity chef Rick Bayless and craft brewery Two Brothers, Constellation launched a Belgian White-style beer named Tocayo Hominy White Ale.
Before the deal with Constellation, Ballast Point wanted to sell shares to the public to raise an additional $172.5 million in capital. The company has since withdrawn the IPO, opting instead for the purchase deal.
After the transaction is complete, the Corona brand owner intends to leave Ballast Point founder Jack White and his team in charge of the operation. The Constellation-Ballast Point deal should complete sometime before the end of the year.
[Photo by Justin Sullivan/Getty Images]