![#](https://e-malt.com/Images/left_top_corner16x200.gif) | E-Malt.com News article: USA, CA: Ballast Point Brewing Company sold to Illinois-based Kings & Convicts Brewing![Brewery news](https://e-malt.com/Images/BeerBullet2.gif)
Six months before Constellation Brands purchased San Diego’s Ballast Point Brewing Company for an eye-popping $1 billion in 2015, an entrepreneur by the name of Brendan Watters sold his small hotel franchise business for a comparatively tiny $8.5 million to Red Lion Hotels Corporation, Forbes reported on December 3.
Now, four years later, the former hotelier-turned-brewery owner has agreed to acquire Ballast Point in a move that left craft beer industry watchers scratching their heads on December 3.
In a press release, Constellation — the country’s third-largest beer company and owner of popular Mexican import beer labels Corona, Modelo, and Pacifico — said the Illinois-based Kings & Convicts Brewing would purchase the Ballast Point brands, along with its breweries and brewpubs throughout the country. Ballast Point’s $48 million brewing facility in Daleville, Virginia, which opened in 2017, was not included in the transaction, however.
Financial terms were not disclosed, and the transaction is expected to close by the end of the 2020 fiscal year.
Reached by phone, Watters, an Australian who cofounded Kings & Convicts in 2017 and presently serves as its CEO, said conversations about acquiring Ballast Point began in late July.
“I sat down with one of the Constellation guys and I just made an offer,” he said. “I went headlong into it, and tried to get it before anyone else.”
Watters tapped his brewery partner Christopher Bradley and four other investors, and secured bank financing to make the deal happen, he added.
Constellation’s decision to sell Ballast Point comes after two consecutive years of declines – production dipped from a peak of 431,000 barrels in 2016 to 320,000 barrels in 2018, according to the Brewers Association.
“Trends in the U.S. craft beer segment have shifted dramatically since our acquisition of Ballast Point,” Constellation Brands president and CEO Bill Newlands said via the release.
Since acquiring Ballast Point for roughly $3,500 per barrel, Constellation has failed to grow the brand nationally, and the company has admitted to overpaying for the brand by recording nearly $200 million in impairment charges in 2019 and 2017.
Nevertheless, Newlands contends Ballast Point is still “one of the most iconic craft beer brands in the country,” even as the number of breweries has swelled beyond 7,500.
“We’re pleased to transition the business to an owner that can devote the resources needed to fuel its future success,” he said in the release.
That of course begs the question – if Constellation couldn’t make it work, how will an unknown startup that made just 550 barrels of beer in 2018 make a go of it?
“By taking the shackles off the Ballast Point employees and unleashing them with anti-authority and independence again,” Watters said.
For Watters, the acquisition represents an opportunity to renew the “David versus Goliath” narrative that helped build craft beer over the last decade.
“There is nothing special about us,” he said. “We are not some big brewery. We’ve gone against the trend. Just the other day Lion acquired New Belgium, and Anheuser-Busch InBev is finishing off its acquisition of Craft Brew Alliance. We are taking this brand back, and bringing it back to independence.”
While that may serve as a nice rallying cry for Ballast Point’s 560 employees, all of whom Kings & Convicts says will be retained, the harsh reality is that U.S. beer production is at an all-time low and many established craft breweries are struggling to eke out single-digit growth.
Still, Watters is bullish.
“I don’t think anyone is going to stop drinking craft beer,” he said. “You have to separate perception and reality. Sculpin and a bunch of the other brands still sell very well in California and a variety of other markets. We are going to continue distributing where demand is, and deploying resources where it is popular.”
In doing so, Kings & Convicts plans to focus on selling Ballast Point products in 12 “core” U.S. markets moving forward, Watters said. Those include California, Colorado, Florida, Illinois, Massachusetts, Nevada, New Jersey, New York, Texas, Virginia, Washington and Wisconsin.
“Retailers are going to start pushing distributors to rationalize their SKUs,” Watters said. “Bigger players like Ballast Point have to work out what they want to do, and where they want to play.”
He added that international opportunities in Australia, South Korea and Sweden are also important to the company moving forward.
And while Kings & Convicts attempts to breathe live back into Ballast Point, Constellation said it would shift more of its focus toward offerings like the forthcoming Corona Hard Seltzer.
“Against the backdrop of a changing craft landscape, this move enables us to focus more fully on accelerating performance in growing sectors of the high-end, and fueling upcoming disruptive, new product introductions such as Corona Hard Seltzer,” Constellation spokeswoman Maggie Bowman wrote to in an email.
So, what does that mean for Constellation’s two other acquired craft breweries — Florida’s Funky Buddha Brewery and Texas’ Four Corners?
“Funky Buddha and Four Corners are focused on winning in their home markets, which aligns with consumer trends,” Bowman wrote. “We continue to look for avenues to maximize growth for these brands and our overall beer portfolio.”
Constellation, which also owns a number of popular wine and spirits labels, has maintained that it wants to be a “leader in the high-end of the U.S. beer market.” At the same time, it has invested $4 billion into Canadian cannabis company Canopy Growth as it looks to capture a piece of a budding global cannabis market that is poised to be worth $41 billion by 2024.
Bowman said Constellation’s growing interest in cannabis did not play a role in its decision to sell Ballast Point, calling the Canopy deal a “separate, forward-looking investment.”
“Today’s news is about reacting to market trends and focusing more fully on growing sectors of the high-end,” she wrote.
In recent months, Constellation has focused on divesting underperforming brands and doubling down on higher growth areas. In April, the company announced it would sell about 30 lower-prices wine and spirits brands to E&J Gallo Winery for $1.7 billion.
Cowen analyst Viven Azer welcomed today’s news, writing in a note to investors that the divestiture would allow Constellation to “redeploy resources.”
“Since taking over as CEO, Bill Newlands has established a clear mandate to focus on high growth, high margin brands to complement STZ's best-in-class import beer portfolio,” she wrote. “STZ remains our overall Top Pick. Maintain Outperform.”
Constellation’s planned sale of Ballast Point marks the fourth significant beer transaction in the last month. Most notably, Colorado’s New Belgium announced a sale to Kirin subsidiary Lion Little World Beverages. Anheuser-Busch InBev also said it would buy the remaining shares of Craft Brew Alliance that it did not already own for $16.50 per share.
Additionally, Molson Coors invested in beverage incubator L.A. Libations and Bold Rock Hard Cider said it would sell to family office-backed Artisanal Brewing Ventures.
04 December, 2019
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