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In Craft, $20 Billion Could Be At Play

Beer Business Daily:

Bill Anderson delivered interesting news on the craft industry’s investment outlook at Monday’s Brewbound conference.

LOTS OF CASH CHASING A UNIQUE CULTURE. Bill explained how there is “no shortage of investors who want into the craft arena.”  His group has met recently with three large family offices in New York that want into the space, and an international company that wants to make a large craft investment. The draw is “fun, iconic” brands affecting not just beer or the beverage space, but also culture and consumerism  in general.

“But they’re also doing the math, saying, ‘If craft is 5% of volume and 7% of dollars of a $95 billion U.S. beer market, and people are saying it could be … 10% or 20%, or [as Steve Hindy recently said of full-flavored, high margin beer’s potential] 30%, you’re talking about $15 to $20 or more billion worth of money at play. That’s what’s attracting private equity.” He estimates that First Beverage hears from private equity firms “once or twice a week” asking for introductions to the craft space.

“Usually we don’t say yes. I think there’s a huge culture question of private equity coming into the craft beer space,” says Bill. And he has other concerns.

MISMATCHED EXPECTATIONS AND CULTURES. Investors may see craft’s rosy picture and growth numbers, and the way craft’s influence extends. And they may be crunching those aforementioned potentials. And hoping to fund the next New Belgium.

In reality, the cultures have potential to clash. Bill isn’t confident, for example, that some outfits understand the “costs of iconic, socially responsible brand resonance” that is craft’s bottled lightening. Moreover, he doesn’t know if they have the patience it takes to get brands “lifted,” citing the phenomenon of Blue Moon’s 15-year “overnight success.”

Investors also don’t like high capital expenditures. “Private equity doesn’t like to see a lot of money going into brewing facilities,” Bill says. But Schlafly’s Dan Kopman and Saint Arnold head and former banker Brock Wagner estimate it will take some $1.5 billion to build the capacity needed to take craft to 10 share.

Finally, they’d have to come to alignment on exit strategies, over which the segment itself is struggling. It’s also struggling on whether it wants to take private equity money to begin with.