Led By $23 Million Purchase of Cisco Brewers, Craft Brew Alliance Buys 3 Beer Companies
Chris Furnari Oct. 10, 2018 at 10:31 AM
Craft Brew Alliance’s nearly four-year-long strategy of partnering with smaller brands has officially culminated with three separate purchase agreements that, combined, will cost the company less than $45 million.
CBA, a publicly traded craft brewery group headquartered in Portland, Ore., today announced that it would wholly acquire Massachusetts’ Cisco Brewers, North Carolina’s Appalachian Mountain Brewery and Miami’s Wynwood Brewing.
“From the beginning, we knew that our shared values and complementary interests gave us a platform to grow together,” CBA chief Andy Thomas said via a press release. “Over the past few years, as we’ve gotten to know each of these exceptional breweries and their passionate teams, it became increasingly clear that the future would be brighter for all of us working together as one.”
The company will spend $23 million to acquire Cisco Brewers, which was founded in 1995 and operates a small brewery on Nantucket Island.
Financial terms for the other two transactions were not disclosed. At the end of 2016, CBA invested $2.1 million to acquire a 24.5 percent stake in Wynwood Brewing, indicating a potential valuation of more than $8 million.
The Wynwood and Cisco Brewers transactions closed today, and the deal with AMB is expected to close before the end of the year, CBA said.
The combined cost of the three transactions, which were financed via a new revolving line of credit with Bank of America, will not exceed $45 million, Thomas told Brewbound.
The deals with the three smaller breweries, which combined will account for about 5 percent of CBA’s total production volume in 2018, comes about eight months after the company announced that it would eliminate an emerging business unit tasked with forging strategic partnerships in favor of a strategy that prioritized innovation over mergers and acquisitions.
CBA’s emerging business division wasn’t formally launched until mid-2015, but the company established its first strategic partnership with AMB at the end of 2014. Four months later, CBA extended the partnership and became AMB’s master distributor. CBA later began brewing some of the North Carolina brewery’s offerings at its brewery in Portsmouth, New Hampshire.
One year later, in September 2015, CBA struck its second distribution and brewing partnership, with Cisco Brewers. At the time, Thomas told Brewbound that the company planned to purchase a minority interest in the Nantucket-based craft brewery.
Then, in December 2016, CBA made its first cash investment, spending $2.1 million to acquire a 24.5 percent stake in Wynwood Brewing.
All three deals gave the individual beer companies access to expanded brewing capacity at CBA’s production facilities and allowed the smaller breweries to tap into a nationwide network of Anheuser-Busch wholesalers. Anheuser-Busch owns 31.4 percent of CBA, which itself has a master distribution arrangement with the Belgian-owned and Brazilian-led Budweiser maker.
Throughout 2017 and 2018, CBA increasingly focused on becoming more profitable and locally focused, via its so-called “Kona Plus” strategy. As part of that initiative, the company — which also owns the Redhook, Widmer Brothers, Omission and Square Mile Cider brands — prioritized sales of Kona beer across the U.S. while simultaneously pulling back distribution of Widmer and Redhook offerings and driving increased sales of its partner brands in their respective home markets.
In a conversation with Brewbound, Thomas said the company’s strategy of negotiating distribution and brewing-focused deals allowed all of the companies to better understand the benefits of partnering. But the initial plan wasn’t built around absorbing companies as a means of capturing local market share.
“When we got into these agreements, the idea was to take an equity stake and not to fully acquire the brands,” he said. “But the companies have evolved, we’ve gotten to know each other, and in today’s market this isn’t a time to divide and conquer. It is a time to unite and conquer.”
As time wore on, and as the growth within the craft sector slowed, the lack of complete integration was holding all of the partners back, Thomas noted.
“There is more division, in terms of fragmentation of effort and resources,” he said. “The marketplace right now warrants us to be all hands on deck.
“We’ve learned a lot from each other,” he added. “There is experience, locally, that they bring to the party. And there is experience from other markets that we are able to transfer. There is power in that moving forward.”
Though each of the deals is structured differently, Thomas said CBA’s biggest strength lies in brewing and commercializing beer, as well as financial, supply chain and wholesaler management.
What CBA gets in return is access to important craft beer markets in Florida, Massachusetts and North Carolina with local brands that resonate better with consumers in those regions.
“As a publicly traded company, it is tough to be as entrepreneurial as you want to be sometimes,” he said. “In the case of Cisco, we are buying the brands, the beer and the wholesale side of the business. And they will continue to develop the retail side of the business – the pop-ups and the taprooms.”
But looming over these transactions is one big question: Will A-B will make a “qualified offer” for CBA – and all of its newly acquired brands — before next year? Under the terms of a renegotiated commercial agreement, A-B has until next August to make an offer to acquire CBA’s 19 or so million outstanding shares for $24.50.
According to Thomas, all three partner brands are “well aware” of the potential for A-B to make a qualified offer for the CBA business.
“It provides an opportunity for everyone,” he said. “If someone comes in and decides to buy the company, they understand that is the risk for any publicly traded company and they understand the uncertainty.”
If A-B does move to wholly acquire CBA over the next 10 months, Thomas said he has “no concerns” that it would look to sell off certain pieces of the CBA business in order to appease the Department of Justice, which has yet to complete a required Tunney Act review and approve a consent decree for A-B’s purchase of SABMiller.
“If you take a look at the individual size of these brands, they are relatively small,” he said. “Even if you can grow them in a rational way, they are pretty small in their respective markets, and I think they are small enough that they wouldn’t be a concern for anyone.”
Cisco is the largest of the three brands, at about 25,000 barrels, according to Thomas, and it distributes its beers across 13 states. AMB produced about 5,500 barrels in 2017, according to data from the Brewers Association, and distributes its beer in North Carolina, South Carolina and Tennessee. Wynwood, meanwhile, only distributes in Florida and produced about 6,000 barrels of beer in 2017, according to BA records.
“They all have unique opportunities that are pretty complementary,” Thomas noted. “That is why they are still so interesting to us. Cisco is the most mature of the three, but Wynwood and AMB have more upside down the road.”
CBA will add about 50 incremental positions as a result of the acquisitions.
AMB CEO Sean Spiegelman will step aside to run the We Can so You Can Foundation, a non-profit that he founded. CBA will continue to contribute to this group and AMB brewmaster Nathan Kelischek will manage the brewery.
Cisco’s five partners – Dean Long, Melissa Long, Randy Hudson, Wendy Hudson and Jay Harman – will continue to lead the brand, but they will not become employees of CBA. Harman will continue as CEO of Cisco Brewers.
CBA will own the Cisco Brewers brand and beer business, while the Cisco partners will continue to own and operate the brewpub properties and retail merchandising, including the original brewery in Nantucket. Cisco’s wine and spirits labels were not included in the deal.
Wynwood Brewing will become a wholly owned subsidiary of CBA.
The deals with AMB and Wynwood were born out of Brewbound’s Startup Brewery Challenge, sponsored by CBA. AMB won the challenge in 2014, and Wynwood won in 2015.
Additional details are available in the press release, below.