November 19, 2015

Constellation Brands announced on November 16 that is has agreed to pay $1 billion for California-based craft brewer, Ballast Point Brewing & Spirits, representing a record amount paid for a craft brewing company, according to the Wall Street Journal.

Impressed by Ballast Point’s rate of growth and premium pricing, Constellation, which owns Corona, Svedka Vodka, and the Ravenswood and Robert Mondavi wine brands, approached the craft brewer last month after it filed regulatory paperwork for the pursuit of a public offering. In the first half of 2015, Ballast Point doubled its production and sales, reaching sales of 118,831 barrels and net revenues of $51.7 million, or $357.66 per barrel, for a first-half net profit of $5.9 million, according to Townsend Ziebold, managing partner at First Beverage Group.

 Moving forward, Ballast Point, which currently distributes in 30 states can leverage Constellation’s connections with large, national retail chains and grocers to expand its distribution network, however the brewer will continue to operate as an independent business, reporting to Constellation’s management team.

Constellation plans to use a combination of cash and debt to fund the deal, which is expected to close by the end of the year, and which is expected to add between five and six cents per share to Constellation’s earnings for the fiscal year ending February 2017.

As U.S. consumer tastes shift away from low-priced and light beers, toward more flavorful and meaningful beers, the Brewers Association, which represents more than 3,000 U.S. craft brewers, estimates that the U.S. craft brewing segment will grow to account for 20% of the country’s $100 billion beer market by 2020 – up from the current 10% market share.

Multinational players are taking note and responding in different ways and the Constellation deal marks the fourth and largest craft brewing deal this autumn, and comes on the heels of high-profile acquisitions of craft brewers by Anheuser-Busch InBev NV, MillerCoors LLC, and Heineken NV. Last week AB InBev announced the acquisition of its rival, SABMiller PLC for $108 billion in a deal that will further expand AB InBev’s reach into Africa and Latin America, reducing its dependence on the shifting U.S. market, while Constellation has decidedly moved to strengthen its presence in the U.S. beer market’s areas of growth – namely, craft beer and Mexican imports. Constellation grew to become the third largest brewer in the U.S. in 2013 after acquiring the Corona, Modelo Especial, and other Mexican beer brands from AB InBev when its acquired Grupo Modelo.