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Beer Insights Conference: Where Capital/Consulting Shop First Beverage Sees Things Heading

Beverage Business INSIGHTS:

Tho its actual investments to date only number 2 and it hasn’t shared many details about magnitude of its consulting biz, First Beverage Group still has managed to generate lotta buzz in recent months. It flipped most of Activate stake to India’s Tata Group for 51% gain in only 16 months, buttressed core capital operation with incubator targeting smaller firms at beginning of year, and has brought on some familiar names including former New Belgium exec JB Shireman and Nantucket Nectars and O Water creator Tom First. So audience at Beer Insights Spring Conference in Chicago on Mon wasn’t going anywhere as chmn/ceo Bill Anderson and coo Joth Ricci outlined their ambitions and observations.

So far, co has reviewed 300+ biz plans, but only chosen to invest in 2 (Activate, Thomas Kemper Soda). “Tough to find brands we really feel good about,” was Bill’s explanation for low hit rate. FBG is able to draw funding from group of 25 current and former distribs and various hi-net-worth individuals. As for Activate, FBG raised $6 mil from internal holders, then brought in additional $21 mil, incl $18 mil from Tata to be dispersed in tranches starting with initial $3 mil check. In Dec FBG flipped its stake for 51% gain, 42% internal rate of return. (Other holding, in Kemper, is very small, co has previously said.)

Bill likes several aspects of smaller bevcos. They have good margins (which doesn’t always mean they operate at a profit). They have organic go-to-market strategy that can see brand like Zico Coconut Water patiently seed influencer channel like NY yoga studios. Social media seems more effective for intriguing smaller brands. And in contrast to corporate-owned brands, many are aligned with contemporary consumer values like local, authentic, artisanal. On other side of ledger he cited familiar risks: crowded, competitive markets, entrepreneurs’ lack of bev-specific experience, significant funding gaps (between $300-500K from family/friends and first institutional round), limited distribution choices. Of course, that’s where FBG can help.

What does it look for in prospective investment? Focused, frugal, flexible management. Capital structure in which investors add value; otherwise it’s just a hassle dealing with them. Highly differentiated product, right branding/marketing.

Sale multiples at exit? “Huge disparity,” said Bill. Often not based on ebitda but topline. Glaceau (Vitaminwater) commanded 13x topline from Coke but more recent deals have been in 3x realm. Even that 3-5x range that he expects to see “is still pretty rich.” On craft beer side, Anheuser-Busch takeout of Goose Island brought 1.5x revenues. And buyouts to distributors? Traditionally been in range of $1 per case for trailing 12 months, “but it’s all what you negotiate,” advised Joth. “A lot just depends on the size of the brand.”