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Private Equity is Everywhere in Beer

The recent announcement that Fireman Capital, a private equity firm based in Boston, is acquiring a majority stake in the Utah Brewers Cooperative is just the latest sign that private equity has emerged as a significant source of capital in the beer industry.

This isn’t the first time PE has come into the craft industry, and it certainly won’t be the last.   Craft brewers need capital for expansion and wider distribution networks, and at some point some brewers will consider partners or buyers due to a lack of succession alternatives or simply increased business pressures.

While it depends on the type and the personality of the new money that comes into the industry, it’s likely that the waves of new capital we’re seeing these months are sure to change the face of the beer landscape in the years ahead—whether it be in pricing strategies, margin allocations, exit mindsets, or the relationships between suppliers and wholesalers.   How this industry has operated in the past is about to alter dramatically as a result of a large, new influx of capital.

The acquisition by KPS in February, 2009 of what became North American Breweries is the best example of PE dollars and a PE mindset coming into the industry. They reduced costs, drove efficiencies across all brewing operations, and now are reportedly selling after owning the assets for less than four years.

Even the acquisition of Pabst by the Metropolous family has been seen by many as another example of a more strategic and corporate strategy coming into the space.

Private equity may also continue to hit the middle tier. Byron Trott’s BDT Capital bought City Beverage in Chicago in 2010, thanks to an unusual deal with ABI.  BDT manages money for an A-list of families and investors. There’s clearly not enough capital in either system to accomplish the expected flow of distributor consolidations in the future.

The Meritage Group, the family office of the highly successful hedge fund manager Jim Simons and his son Nat, is in the process of acquiring Columbia Distributing. Meritage isn’t private equity by design—a family office doesn’t have the built-in investment deadlines of private equity firms, which have been criticized for having short-term investment horizons.

All of these deals are just the start. It would be hard to think that, especially in the craft world, we won’t see other investors—PE, family offices, and high net-worth investors—highly attracted to this industry, given craft’s extraordinary growth rates.

Meritage—and a range of other strategic family offices and some smaller PE firms with the right approach and longer investment cycles—will likely be the best investment models going forward. I’ve said before that distributors and craft brewers need to find good, large streams of new capital. Whether the new capital coming is smart and patient—or not—will make all the difference to the beer industry going forward.