Thursday, August 3, 2017

Anchor Is Sold

Anchor Brewing has been sold to the large private Japanese brewing company Sapporo Holdings.  The $85 million transaction is expected to close by the end of August.  Sapporo is buying a well known brand, which anecdotally, seems to have a strong distribution in place.  Anchor was no longer owned by Fritz Maytag, he sold to private equity firm Griffin Group in 2010.  The threat of large mega brewing conglomerates has never been greater and shows no signs of subsiding, so I expect more transactions like this.

Good Beer Hunting has a good article by Matthew Curtis, who also runs the Total Ales blog, on the transaction.  This passage jumped out at me:

The valuation of this transaction will come as a shock to some because it’s considerably lower than that of other recent brewery acquisitions—$85 million is just 2.5 times that of the company’s 2016 annual sales total according to Sapporo’s press release. It’s a figure that feels somewhat insignificant when compared to the billion-dollar valuations that both Lagunitas and Ballast Point commanded in their own acquisitions by Heineken and Constellation Brands respectively—especially when you consider the heritage and legacy that Sapporo will be adding to its portfolio.  

It is hard to imagine a private equity firm selling its stake for less than market value.  Read another way, it looks like Heineken and Constellation may have overpaid to buy competitors, or factored in some outrageous growth projections in their valuation models.  

I saw this San Francisco Chronicle article (hat tip Ramblings of a Beer Runner) that puts the sale in context, too.  An interesting point from the article is that Anchor is only operating at 55% of capacity, which gives it considerable expansion capability at its current facility.  One of the first things I thought about when I read about the sale was the status of Anchor's planned brewery/restaurant/beer museum on San Francisco's Pier 48.  Apparently, this beer amusement park is going nowhere soon, as reported by the Chronicle.

If you are of a certain age, which I am, it is likely Anchor's Steam Beer was your first craft beer.  It was mine.  I never liked Steam that much, and it made young me leery of craft beer until I tried others that I liked better, like Sierra Nevada's Pale Ale.  I like Steam now more than I did, but that first impression has stuck.  It is too bad I did not try Anchor's Porter first, because that is one great, true to style beer.  While not true to style, but surely on trend, I have liked other recent Anchor offerings, too, like its blackberry IPA and its meyer lemon lager.  

Craft brewers that do not want to sellout to giants like ABI or Molson Coors, but still want growth capital are looking to private equity for financing.  The Bruery sold a majority of itself to private equity firm Castanea Partners in May.  Private equity firms typically allow original owners to continue to run the business, but the owners are no longer the sole owners and decision makers. Private equity firms raise their capital through investment funds, which generally have five- to ten-year hold periods.  At some point, the private equity firms have to liquidate these funds by selling their investments to provide returns to their fund investors.   At that point the original owners attracted by private equity have little say in who buys the company.  I suspect part of Griffin's decision to sell Anchor was a need to provide a return of capital to its fund investors after seven years.  Selling to a private equity firm to avoid being bought by a mega brewer, only to eventually be sold to a mega brewer is unfortunate, but out of the original founders' hands. 

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