Craft brewery M&A update - Fourth quarter 2015

Market overview

The craft brewery industry is comprised of four segments of breweries that produce a limited amount of beer, typically up to 6.0 million barrels (or approximately 3 percent of US beer sales) per year. The four segments are microbrewery, brewpub, contract brewing company, and regional craft brewery. A microbrewery produces less than 15,000 barrels of beer per year with 75 percent or more sold off-site. A brewpub is a restaurant-brewery that sells 25 percent or more of its beer on site. A contract brewing company is a business that hires another brewery to produce its beer but handles marketing, sales, and distribution. Finally, a regional craft brewery is an independent regional brewery with a majority of volume in “traditional” or “innovative” beer(s). As of December 2015, the Brewers Association counted 4,144 breweries in the US, a new all-time high operating simultaneously. That figure has more than doubled since the end of 2011 when there were 2,033 breweries, and has grown nearly 15-fold since 1990 when there were 284 breweries.

Key external drivers for the craft brewery industry include increased brewery startups, increased demand from wholesalers, higher per capita expenditures on alcohol and higher overall disposable income, lower prices of coarse grains (barley, oats, and sorghum), and lower excise taxes on beer. These drivers have generally been tailwinds for craft breweries over the past few years but may become threats as competition intensifies. The expanding market has created a new set of problems for craft brewers, namely convincing distributors, retailers, bars, and consumers they are more deserving of sales than better-known beers. For example, some small brewers have expressed frustration with the way bars order their products, as many opt to buy one keg at a time and alternate with a competitor’s product when empty.

Market value data is provided by the following five publicly traded breweries in the US, three of which do not have material valuation metrics. The remaining two (Boston Beer Co. and Craft Brew Alliance) are trading in a relatively narrow range; EV/EBITDA ranging from 11.1x to 12.7x for an average of 11.9x.

Comparable public company valuation summary

Source: Capital IQ (02-16-2016)

Other non-public major players in the craft brewery industry include D.G. Yuengling & Son, Sierra Nevada Brewing Co., New Belgium Brewing Company, and Lagunitas Brewing Company. The following market share and revenue estimates are from IBISWorld’s 2015 Craft Beer Production in the US Industry Report.

  • Yuengling (19.3 percent estimated market share; $964 million in annual revenue) is the oldest brewery in the US and brews approximately 2.5 million barrels per year from its two Pennsylvania locations and its new Tampa, FL plant. Unlike many of the industry’s largest craft breweries that are capable of negotiating national distribution contracts, Yuengling primarily distributes across the East Coast.
  • Boston Beer (18.3 percent estimated market share; $914 million in annual revenue) primarily brews under the Samuel Adams brand name and has historically been the most prominent craft brewing company in the US. Approximately 2.5 million barrels are produced annually and Boston Beer Company sells 96 percent of its beer domestically through relationships with 350 independent, licensed beer distributors.
  • Sierra Nevada (4.0 percent estimated market share; $200 million in annual revenue) is based in Chico, CA and runs a restaurant and concert venue in addition to the brewery where they produce approximately 780,000 barrels annually. Sierra Nevada expanded production to a second brewing facility with production at its Mills River, NC brewery in 2014. The new facility decreased distribution costs to the East Coast and expanded production capacity.
  • New Belgium (3.6 percent estimated market share; $180 million in annual revenue) is based in Fort Collins, CO and currently produces over 945,000 barrels per year. Much like many of the industry’s emerging major players, the company started as a homebrew by its founder. The business grew to its current distribution across 37 states and completed a 100,000 sq. ft. distribution center in Asheville, NC in 2015, which is anticipated to boost annual capacity by 500,000 barrels.
  • Lagunitas (3.3 percent estimated market share; $165 million in annual revenue) was founded in 1993 as a local microbrewery in Lagunitas, CA. Lagunitas currently operates distribution channels out of 32 states and completed construction on a 600,000 barrel capacity brewery in Chicago in 2014 to facilitate faster shipments to the Midwest and Northeast. The company also announced in June 2015 plans to build a third facility in Azusa, CA with a production capacity of 420,000 barrels per year, which is expected to open in 2017.

Small breweries pin their hopes on localization: the idea that consumers would rather drink beers made in their area than across the country. In national surveys conducted by the Brewers Association, 67 percent of craft beer drinkers said it was important to them that their beer be locally brewed. This phenomenon is evident in the Wisconsin market, as many small breweries have flourished such as Lakefront, Water Street, and Milwaukee Brewing. The Wisconsin poster child of growth via localization is New Glarus Brewing, which has grown to the 21st largest craft brewer in the US despite distributing exclusively in the state. Public precedent transactions closed in 2015 with either reported transaction values or by public acquirers are listed below. Home Brew Mart’s acquisition by Constellation Brands was the only large acquisition.

Midwest craft brewery M&A transactions

Public precedent transactions closed in 2015 with either reported transaction values or by public acquirers are listed below. Home Brew Mart’s acquisition by Constellation Brands was the only large acquisition.

View the full update >

For more information on this topic, or to learn how Baker Tilly Capital specialists can help, contact our team.

Baker Tilly Capital, LLC disclosure >
Baker Tilly Capital, LLC privacy policy >