Constellation Brands has acquired Ballast Point Brewing & Spirits Company in a $1 billion deal. It may seem unusual for an established brewery to purchase a craft beer company for such an exorbitant price, however, the acquisition speaks to the growing popularity of craft beers in general.
As defined by the Brewers Association, craft beers are produced by comparably small and independent breweries that generally use traditional ingredients and recipes.
In the early 1990s, college roommates Pete A’Hearn and Jack White started brewing their own beer as a hobby. As they had trouble finding the necessary ingredients and supplies, they realized the community was in need of a craft beer supply company. To meet that need, Jack opened the Home Brew Mart in 1992.
As they simply did not have enough space in their apartment, Jack and Pete began brewing craft beer in the back room of Home Brew Mart with the assistance of their first and only employee, Yuseff Cherney. In 1996, the three men perfected their recipe and founded Ballast Point Brewing.
According to the company website, “Ballast Point’s philosophy has always been doing what [they] love, and making what [they] love to drink.”
As the founders enjoy fishing, their beers are all “named for fish or fishing terms.”
— Paste Magazine (@PasteMagazine) November 16, 2015
Due to their increasing popularity, and the addition of distilled products, Ballast Point was eventually forced to expand to a larger facility in Scripps Ranch in 2004. By 2014, the company built an even larger brewery in Miramar to keep up with the demand for their unique beers.
The craft beer company also founded a restaurant, complete with its own small brewery, in San Diego’s Little Italy. Although Ballast Point expanded to two other locations, Home Brew Mart remains in its original location on Linda Vista Road in San Diego.
— All About Beer Mag (@allaboutbeer) November 17, 2015
In stark contrast, Constellation Brands began as a producer of wine. Founded in 1945 under the name Canandaigua Industries, the company made $150,000 in profits during their first year. By 1951, their profits exceeded $1 million.
Following numerous acquisitions and expansions, Canandaigua Industries became Constellation Brands in 1973. Over the next 40 years, they expanded their product base to include beer, specialty beverages, and spirits in addition to their extensive variety of wines.
As they are also interested in expanding their variety of beers, Constellation Brands acquired Ballast Point Brewing & Spirits Company for $1 billion.
The Los Angeles Times reports Constellation is definitely taking a risk. However, as craft beers, including those produced by Ballast, are increasing in popularity, the risk is expected to pay off.
In 2014, Ballast Point sold 123,000 barrels of beer and reported nearly $50 million in revenue. Those numbers “are set to more than double in 2015.” Using the projected 2015 revenue, Constellation Brands acquired Ballast Point Brewing for 10 times their current annual revenue.
Constellation Chief Executive Rob Sands said he is confident about the acquisition, as Ballast has proven successful in the business of developing craft beers.
“Their business philosophy and entrepreneurial spirit perfectly align with our culture, and we look forward to strengthening our position in the high-end beer segment with what is arguably the most premium major brand in the entire craft beer business.”
IbisWorld analyst Nick Petrillo agrees that despite the large price tag, the acquisition makes good business sense.
“Per capita spending on alcohol is stagnant in the U.S… Where it’s not stagnant is craft beer. It’s the reason why the industry’s largest macro breweries [are buying craft breweries]. I guarantee going into 2016 it’s something we’ll see more frequently.”
Constellation Brands’ acquisition of Ballast Point Brewing & Spirits Company raised some eyebrows. However, the long-standing company is confident that they made a good decision, which will increase their variety of beers and their profits.
[Image via Shutterstock/Nitr]