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Consolidating The Consolidators; Competing With Reyes; Revisiting MC Megadistribs In West

Beer Marketer’s INSIGHTS:

Meritage deal for Columbia was first outright acquisition of distrib that brought in outside capital to beer biz in big way in one fell swoop. Very few players within biz that could come up with $500 mil. Clearly, Meritage aims to do more beer distrib deals and has capital plus MC’s blessings to do so (see MC statement below). As such, it represents the largest competitor extant to Reyes Bev Group for MC deals. MC has long sought such an option that provides alternative exit strategy for distribs. Recall, Keg One originally envisioned as that. In both Columbia and Chesbay deals, distribs who were formerly consolidators are getting out. These are consolidations of big consolidators (tho not very largest). It’s another sign that consolidation has entered a next phase. “When do the megadistributors start buying the megadistributors,” asked consultant Mike Mazzoni.

Chesbay owned by Sampson family, one of pioneering MillerCoors consolidators back in late 90s, which took enormous grief for buying Coors distrib at time. Sampson family will still own operation in Knoxville, Tenn. And Columbia has complex ownership group that include such formerly acquisitive MillerCoors distrib families as Fowler, Maletis and Lytle, with Maletis reportedly having the biggest stake. Ron Fowler recently much in news as lead exec in group that has deal to buy San Diego Padres. Presumably some of his approx 10% stake in Columbia can help pay for his stake in Padres. Ron still owns distribs in Calif, Colo and a stake in Milwaukee distrib Beer Capitol.

Interesting twist Meritage and Reyes were already competing for Chesbay deal in Va. Meritage even reportedly assigned negotiating rights by MC at one point. MC also sought other deal combos, including with another significant consolidator, the Honickman Group. But Reyes offered more and Va franchise law very strong.

3 Western Megadistribs Half of Non-AB Biz: Back in 2008, we wrote analysis that showed 3 distribution groups dominated MC sales on West Coast; Columbia, Reyes Holdings and Ingram. At that time,the 3 groups sold 83 mil cases of beer and were about 1/3 of non-AB volume. Fast forward a few yrs and a few deals: today those 3 groups sell 109 mil cases, or 44% of non-AB volume in 3 Western states, more like half of volume that goes thru MC system, since many west coast AB distribs sell lotsa non-AB brands. (Reyes only has half-interest in Crest in San Diego). What’s more, presuming Meritage deal closes, the 3 groups will all be owned by families that appear on Forbes 400 list. That’s a very different kind of beer distribution biz than we’ve seen before.

More on Meritage, Including MC Statement “We welcome the Simons family into the beer business,,” sez MC communications veep Pete Marino. “As we’ve gotten to know them, it’s clear that they have both a long term investment horizon and a commitment to brand building…. The Simons family absolutely is in this for the long haul.” Columbia’s mgt team “is one of the best and they are staying in place to run the business. We look forward to working closely with the Simons family and Columbia’s management team to build our brands and generate value.”

Meritage is “family office” firm as opposed to traditional private equity, sez MillerCoors. Fact that it’s family-run with long term outlook made it more palatable to MC than many private equity firms with short-term “strip and flip” orientation. MC and Columbia execs met Nat Simons (son of Jim) and also Meritage managing director Aubrey Barth. Other big money folks outside beer biz had reportedly looked at Columbia but Columbia owners seemingly more simpatico with Meritage. Meritage has longterm agreements with sr mgt including ceo Gregg Christiansen, who will also become chairman of board, Wash prexy Chris Steffanci and Oreg prexy Mark Walen. First Bev’s Bill Anderson has said for awhile that outside capital needed to come in to beer distribution in a big way to get some of next wave of deals done. Now that it’s happened, interesting to note that Bill reportedly played role introducing MC to guy named Bob Kerrigan who intro’d Meritage.

More on Columbia Columbia is one of top 5 distribs: 34.1 mil cases of beer, 11.1 mil cases of non-alc bevs and 7.8 mil cases of wine/spirits in shared services agreement with Young’s mkt, it sez. That’s one big, exceedingly complex co. Biggest supplier is MC, hard hit in both Oreg/Wash; down double digits in each state over last 3 yrs. Wash is especially tuff mkt following big tax hike that clobbered domestic volume, favored small brewers, plus Costco privatization push, tuff unions and more. But Columbia is also huge player in craft, with only combined Reyes and L Knife entities in same league. It sells most of Deschutes volume in Oreg/Wash where Deschutes did 2 mil cases in 2011. But it has 1 of deepest craft books. It also sells Boston Beer, Sierra, New Belgium, Lagunitas (among top 10), plus lotsa local faves, tho it doesn’t have some of these across full footprint.