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Duvel Moortgat Buys Boulevard

Craft Business Daily:

The rumors you may have heard about Boulevard selling? Now they’re true. Yesterday CBD spoke with Duvel Moortgat CEO Michel Moortgat, who promised us he’d arrive in Kansas City today to finalize the deal. Recall that Belgium’s Duvel Moortgat has been selling Belgian imports like Duvel to the U.S. for over 20 years now, and has been full shareholder of Cooperstown’s Brewery Ommegang for roughly 10. “And so the USA is becoming, in the last 10 years, increasingly an important market for us,” said Michel.

THE DEAL. As for the deal at hand, Boulevard founder John McDonald will retain a substantial shareholding in a newly combined entity with Duvel Moortgat. “We’ll bring together Brewery Ommegang Cooperstown New York on one hand, Duvel Moortgat USA, which is the import company, and Boulevard Brewing Co., and John is going to remain a shareholder in the combined entity,” Michel said.

They’re not disclosing financial information. But a source offered a frame of prevailing multiples ranges in the industry: Some strategic buyers [not Duvel Moortgat] would maybe pay between 12 – 14 times earnings but that makes it difficult to see a return or bank. Then there are some private equity type deals that span 7 – 9 times earnings. And then, there’s a range between 9 – 11, where sensible deals are getting done. Family office deals are getting done between 9 – 12. Our sources and calculations put the deal north of $100 million.

Part of the agreement involves an immediate investment in “Cellar 5” to expand Boulevard production, who will need to meet even greater demand. “There’s a plan on the table,” said Michel. “The short-term plan is to invest approximately $17 million dollars in what we call with Boulevard Cellar 5, which is fermentation and maturation capacity.” New demand will include export opportunities: “We’ll also look to import and distribute Boulevard in Europe and also other countries where we are present, like China.”

THE STORY. “I never thought much about selling a brewery,” said Boulevard founder John McDonald. “And then a couple years ago I woke up one day, I think I was in D.C., and went, ‘I need to do something.'” He looked at a lot of different options to find a “comfortable” succession solution. “I really wanted to do the right thing for the brewery, the employees, Kansas City, and for myself. So I really looked hard, talked to a lot of different people, and went down a lot of different roads, some of them not so great.”

Then he approached Duvel. “Once I met Michel and Simon [Thorpe, Duvel Moortgat USA president] and Hedwig [Neven, Duvel Moortgat CTO] and all their people … I only saw good things going forward.” There were natural synergies: Boulevard brewmaster Steven Pauwels has reportedly known Duvel Moortgat brewmaster Hedwig for years. “And before I even started my brewery, I was in Paris drinking Belgian beer, drinking Duvel. It’s really what got me interested in beer, so this whole thing in some ways is almost like a fairytale thing for me. I’m now going to be partners with one of the most iconic, great brewers in the world.

“I plan on coming to work everyday for as long as I want to, and as long as they want me to be here. Obviously I’ll have a big stake in this thing going well; I have a lot of money invested in the new company. And this brewery means a lot to me.”

Asked how much bigger the first-line Cellar 5 project could take Boulevard capacity, John said their ultimate capacity is likely in the 800,000 to million-barrel ballpark. “We will do the prudent thing and either add it in this new cellar in one big chunk, or a couple smaller ones. But those are things we just don’t know yet.”

SYNERGIES. Our first questions included how and whether they’d reconcile operations and footprints. Turns out Ommegang and Boulevard breweries’ production and distribution are actually already quite complementary, per an Ommegang spokesperson.

“If you put [Boulevard’s] sales network and overlay ours with theirs, it’s an almost perfect fit,” he said. “They are strong where we are weak, and vice versa. So in that respect there’s very little overlap of resources.” In fact, they only significantly overlap in Illinois and Texas, key markets for both brewers. But overlaps will help in some cases: “For example, they have a person in Chicago, and we have two, and we’re going to need three now. … This is not an exercise in cost cutting.” Their combined 54 people sales team will offer them “a lot of firepower on the street.”

Michel and John said there’s no immediate plan to change wholesaler networks where they do overlap. “I don’t think there’s any talk of changing wholesaler networks,” said John. “I think those are things over time you work on.” But where Boulevard hasn’t entered a market, Michel said, “it would be more logical to first talk with the Ommegang Duvel wholesaler whether he would be interested — and the other way around.”

Production synergies are also possible. Our Ommegang source called Boulevard a “very, very efficient brewery”: “Technically it’s state of the art. And we have a very flexible brewery in Cooperstown. So it would make some sense on paper for us to produce some of their specialty beers here, and allow them to produce some of our bigger volume beers at lower cost in Kansas City. For every barrel of beer we’d give them, they’d probably end up giving us three, because of relative scale of the business … that means Cooperstown grows. That means we get some efficiencies. But I’m very nervous about anything that involves disturbing the [origin] of the brand: Boulevard is a Kansas City beer. … What we don’t want to do is give the impression that these beers are brewed all over the place… but if New Belgium can produce in Fort Collins and Asheville, it makes some sen se for us to think about the same.”

“THE BUSINESS IN THREE PIECES.” Indeed, Boulevard’s Midwestern identity and stronghold is an important asset, which this partnership will leverage for three market angles. “They’ve got this wonderful core heartland in Kansas and Missouri,” said our Ommegang spokesperson, “very similar to New Glarus’s stronghold in Wisconsin — and around Kansas and Missouri, there’s a series of states where Boulevard is quite successful and still hasn’t fulfilled its potential as the brand of the Midwest.

“Beyond that, they’ve hardly touched California and New York, Florida — places where we have a lot of focus and resources,” so there’s the potential to expand the brand nationally. And finally, “Selling Belgian-style beers to Belgians doesn’t really work. But Boulevard has this quintessential Midwest heartland brand [going] for it, and it’s a beautiful thing in Europe.”

THE FUTURE. We wondered if the deal would put the majority of Duvel Moortgat’s business square in the American craft camp. Michel said no. “If you look at both the European and the U.S. sales and volume, no. The U.S. will only represent like between 25% – 30% of the combined sales. But Boulevard is much bigger in volume than Ommegang and Duvel USA.”

Will they look to pursue more American craft brewer partnerships? “I think for the near future we will have to concentrate on this transaction, this partnership,” said Michel. “Because it’s a very important one. We are a family owned company, but not a huge one. We have turnover from approximately $250 million dollars. So acquiring and teaming up with Boulevard is an important move for us.”

MORE DEALS? JB Shireman of advisor to the deal, First Beverage Group, called it “definitely the most interesting and promising partnership that’s been done in craft to date.” And that Michel Moortgat’s take on the deal is “a marriage of old world craft brewers and new world craft brewers.” His company believes that platform opens up many interesting and exciting possibilities.

“First Beverage was honored to be a part of this. John’s been a friend of mine for a long time. [And we] think they have an amazing thing going on, and we think it’s really cool that John is very much a part of the new entity going forward, being both financially and emotionally invested. It’s very meaningful to him [that] he’s going to be a big part of it. We believe Boulevard will be a stronger company 25, 50 years from now than it would have been had he chosen to remain without a partner.”

We asked if JB thought more such deals would go down soon. He thinks the window may be narrowing. “We believe there are a select number of breweries available that trade buyers would be very interested in. And we believe on the other side, the buyer pool is perhaps not as rich in terms of diversity in the number of interested buyers as maybe people were speculating … and we think when you put those two things together, we feel there’s going to be a fairly narrow window of people who will be able to get more of what they want personally and financially out of these deals.”