E-Malt.com News article: USA, MI: Roak Brewing Co. to acquire Right Brain Brewery in Traverse City

In what may be the first deal of its kind for two Michigan craft breweries, Royal Oak-based Roak Brewing Co. plans to acquire Right Brain Brewery in Traverse City within the next few months, the Detroit Free Press reported on October 3.

The breweries' separate brands are to remain intact, no layoffs are planned, and each expects to offer beers from the other at its taproom. There will also be a "cross-pollination" of beers produced in either brewery, and Right Brain beers are likely to be distributed out-of-state for the first time in places where Roak is available, said Roak co-owner and CEO John Leone.

"It is opportunity for both of us to be stronger!" Right Brain owner and founder Russell Springsteen said in a text message.

Pending the deal's approval, Springsteen will have a stake in the ownership that will also be split among Leone and about two other Roak owners, Leone said. He declined to say how much percentage each will own. The deal is expected to be finalized in about 60-90 days.

"The way I see it is, I'm putting together a militia to take on the imperial nation," Leone said. "We all know what's going on: The big breweries are buying up local breweries. And my thoughts were, 'How could I create a program that allows Michigan breweries to get together and survive together on our own?' Still remain independent, still remain local. And this is what I'm trying to put together."

As the number of craft breweries in Michigan and across the United States more than doubled from 2013-2017, competition for shelf space and taps continued to increase. And the smaller breweries have eaten into the market share of massive, corporate entities such as Budweiser owner Anheuser-Busch InBev, which has far more money and marketing resources than any craft brewery and has bought several of them since acquiring Chicago's Goose Island Brewery in 2011.

The number of brewery closures across the country — while a small fraction of the number of new ones opening — also is increasing. And in Michigan, six of the state's 25 largest breweries recorded back-to-back declines for in-state sales volume both of the past two years, according to tax data from the Michigan Liquor Control Commission.

Right Brain, founded in 2007, and Roak, founded in 2015, both experienced substantial growth in the past few years. And among Michigan's more than 300 craft breweries, they were both in the top 25 for production in 2017: Michigan tax data shows that in-state sales for Right Brain were 4,908 barrels (31 gallons are in a beer barrel); Roak sold 3,481 barrels.

Combining the businesses would allow for them to pool resources, provide some financial insulation and theoretically help get more of both brands to consumers.

"We can be more important to a distributor by being together than being apart," Leone said.

He spoke with the Free Press on October 2, after news of the planned merger had begun to leak, leading to rumors and speculation across social media.

"It's not officially a done deal," he said. "There's still a lot of work to be done to make it a closed deal. But I thought it was the right thing to do to get (it) out, because there's fans of both breweries. And what I did not want was any misunderstandings or concerns whether we're going to be around or not — it's actually quite the opposite. We feel together we're going to be better than apart."

Approvals are needed from the state's Liquor Control Commission for the deal to be completed, and Leone said they just started that process. Terms of the deal are confidential.

While no layoffs are expected, Leone said some positions might move locations. And three or four more people are expected to be hired in Royal Oak, where equipment is sufficient to brew up to 20,000 barrels per year.

In Traverse City, Right Brain will add a full-service kitchen along with other remodeling and the addition of a 3,500 square-foot events space, Leone said.

"The goal is to make us better," he said. "To use the resources we currently have, as one, should make for an overall better experience for the consumer."

Roak is distributed in Indiana and North Carolina, while Right Brain beer is only available in Michigan. Leone said Roak will add three to four more states in 2019, and the deal will make it it relatively easy to distribute Right Brain beers out-of-state as well.

Bart Watson, chief economist with the Brewers Association craft-beer trade group, said deals like this are a growing trend.

"As competitive pressures grow, I’m sure we’ll see more of this," he said in an email. "They do most commonly have some other capital or brewing group involved, but there are lots of variations."

For example, he mentioned North Carolina-based Artisanal Brewing Ventures, a private-equity-backed merger that occurred in 2016 and included New York-based Southern Tier Brewing Co. and Pennsylvania-based Victory Brewing Co.

In Michigan, Perrin Brewing Co. in Comstock Park was acquired by CANarchy in 2016. It continues to brew its own beer with no changes obvious to beer drinkers. But earlier this year, beers from Cigar City Brewing of Tampa Bay became available in Michigan. Both breweries are part of the same company that includes several other breweries and is majority-owned by Boston-area investment group Fireman Capital Partners.

Leone said his group doesn't have anything near the amount of financial backing of an organization like Fireman Capital. And the breweries are both much smaller than Perrin or Cigar City.

Leone said he came up with the idea sometime last winter, and the deal has been underway the past several months. Roak and Right Brain are on opposite ends of the Lower Peninsula, about a 3½ hour drive apart — the former in the state's largest metro area, the latter in a popular tourist destination. Leone said they're the "best of both worlds."

"I also admired Right Brain from afar," he said. "I like their beer. CEO Stout to me is one of my favorite stouts to drink. I liked what they were doing and I admired what they were doing. I also think that we're a good fit."

Right Brain may be the most creative brewery in Michigan. It uses bizarre ingredients such as pig heads, entire fruit pies and asparagus in its beers, frequently with delicious results. The taproom itself is a unique experience in a town with no shortage of breweries; it's decked out with colors and art — you may see a model of a "Star Wars" TIE Fighter hanging from the ceiling — and there's a hair salon, where Springsteen sometimes cuts hair.

One of its tastiest additions of the past year was Luminous Lemon Ale (4.5 percent alcohol by volume), a cream ale made with lemon zest and juice. It's light and refreshing, without the sugary sweetness you might find in a popular shandy (beer mixed with lemonade). But Luminous wasn't easy to find in metro Detroit. Leone said capacity issues limited how much was made and distributed, but under the deal, this won't be nearly as much of a problem.

Roak was ready to distribute from the time it opened, with a head brewer who previously worked at both New Holland Brewing Co. and Founders Brewing Co. — two of Michigan's largest and most successful breweries. Roak makes styles that hew more closely to the latest trends, such as New England IPAs and kettle sours. Its French Toast Devil Dog (8.3 percent ABV) is a delicious oatmeal stout made with maple syrup, and a bourbon-barrel-aged version is to release next month.

The Roak taproom, with a darker interior and sleek designs, has more like a nightclub feel than the artist's loft vibe of Right Brain. Roak has had a restaurant from the start. Both have received medals at the Great American Beer Festival competition since 2015.

Leone said more breweries could be added to the group in the future.

"It's the beginning of a journey, and I would be open to other people that have interest and want to explore opportunities with us," he said. "If it's about keeping Michigan breweries together and keeping us independent, they would be welcome to explore."



03 October, 2018