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June 21, 2018

Is the Keg of Craft Beer M&A Tapped?

MHT Partners  | Consumer Investment Bank

Over the last several years, large and already-consolidated breweries have gone on a craft beer shopping spree – scooping up smaller, trendier brands to help offset sagging sales and diminishing market share. Large strategic buyers that include AB InBev, Sapporo, Constellation Brands, and MillerCoors have acquired over 20 craft breweries since 2014, representing a play by the stalwarts of the industry to freshen up their brand portfolios and tap into craft, the fastest growing segment of the $100B+ U.S. beer market. Lagunitas (acquired by Heineken), Ballast Point (acquired by Constellation), Goose Island (acquired by AB InBev), Anchor Steam (acquired by Sapporo), and Terrapin (acquired by MillerCoors), represent a few of the marquee acquisitions by the mass producers aimed at diversifying their beer offerings, expanding local presence, and integrating inventive brew masters.

However, craft beer M&A has slowed of late, likely due to a number of factors that include a slowdown in craft beer segment sales growth, a shortage of viable “move-the-needle” targets, lack of bandwidth from large strategics that have all made their craft brew bets and are preoccupied digesting / integrating acquisitions, and greater pushback from still-independent brewers. Craft segment growth (5% in volume, 8% in dollars in 2017 vs. 2016*), while still outpacing the non-craft segment, has slowed in recent years in part due to increased saturation / brand proliferation. According to the Brewers Association, the number of U.S. craft breweries doubled from 2013 to 2016. Then there is the resurgence of spirts sales, driven by the craft cocktail movement and the rapid growth of craft spirit brands across the country.

In terms of the shortage of viable targets, many of the “of-scale” craft breweries have largely been acquired, leaving a bevy of smaller, subscale breweries that do not likely possess the broad brand recognition, product quality, and offering variety to attract the attention of larger producers like AB InBev and MillerCoors. There is also the “I’m not for sale” crowd, which includes longtime nationally distributed craft brands Sierra Nevada and New Belgium.

The craft beer M&A market, although currently not as frothy, should eventually regain momentum as the litany of smaller craft brands compete, gain market share, and achieve the scale necessary to draw attention from larger strategic players.

*Brewers Association

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