Thursday, December 5, 2019

Ballast Point - You Can't Go Home Again

The news about Constellation Brands selling Ballast Point to two-year-old Chicago brewery Kings & Convicts Brewing Co. is hard to believe.  Constellation bought Ballast Point for $1 billion in 2015 and is selling the brand to a start up brewery with less than ten employees for an undisclosed price in a transaction expected to close in 2020.  The contrasts scream:  A brewery with six or nine employees depending on what story you read is buying brewery with more than 500 employees.  A brewery slated to brew 600 barrels in 2019 is buying one expected to brew 200,000 in 2019 (down from 320,000 in 2018).  A two-year old brewery buying one more than twenty years old.

A couple of facets to the Ballast Point story I find strange are the origin story of the merger and the lack of financial detail.  An owner of a tiny craft brewery golfs with a Constellation executive and casually says he wants to buy Ballast Point and this starts the sale process.  I am incredulous.  Constellation is a huge public company ($6 billion in sales and a $35 billion market capitalization), with a board of directors to which management must answer.  It must have a formal process to divest or liquidate brands, which would likely involve bankers and attorneys and board approval to ensuring the best price for shareholders.  The golf story is good, but Constellation has an obligation to its shareholders, and an off-market deal does not make sense, especially for a brand bought for $1 billion just four years ago  Constellation's public filing on December 3, 2019, was just a press release and it did not include any of the sale's financial details.  It will disclose the financial details of the Ballast Point transaction in some form, probably deep in a larger financial filing.

One point the articles I have read on the deal seem agree on is that Ballast Point will be independent again.  Another point is that Ballast Point will be headquartered in San Diego. Good and good.  The main buyer and spokesman for Kings & Convicts is its CEO, Brendon Watters.  Watters brought in other investors, apparently winery owners, not private equity, to help finance the purchase.  The lack of private equity investors is positive because private equity looks for big returns (monetizing assets) and does not worry about companies, employees, or brands if they impede returns.  Watters built a hotel brand, Boomerang, and sold it.  If he bought Ballast Point cheap enough and gets sales and production back in growth mode who is to say he will not look to sell it again.  Some of this, or maybe a lot of this, will be dependent upon how the purchase is financed.

I want this transaction to bring back the 2012, or 2010, or 2008 Ballast Point.  I miss Big Eye and Tongue Buckler and Dorado.  I miss the thrill of hearing about a new batch of Sculpin and rushing to the brewery to buy a growler of it.  I miss the Homework Series releases.  I miss the Linda Vista tasting room.  But I know you can't go backwards, and pre-Constellation Ballast Point is just good memories.  I know the new owners will have their ups and downs, I just hope the downs do not start a spiral to oblivion.  I plan to give the new owners a chance, buy Ballast Point beers again, and visit the Linda Vista tasting room. I plan to remain optimistic until given a reason not to be optimistic.