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Duvel Moortgat To Buy Boulevard For $110-120 Mil; Biggest Craft Deal Yet

Craft Brew News:

Belgian brewer Duvel Moortgat, which also owns NY craft brewer Ommegang and hi-end importer Duvel Moortgat USA, has deal to buy Boulevard based in Kansas City, creating a new US based company. Deal price is between $110-120 mil we hear, tho that’s unconfirmed by either party officially. That’s the 1st major craft brewer deal for over $100 mil (tho New Belgium’s Kim Jordan sold her stake in New Belgium to employees for much more than that last yr). AB bought Goose Island for $38.8 mil in 2011, Magic Hat bought similarly sized Pyramid 5 yrs ago for $25 mil and assumption of $10 mil in debt (NAB paid less), Fireman’s Capital bought majority of Utah Brewers Coop for $35 mil last yr.

Boulevard expects to do 188,000 bbls in 2013, up about 8% and it was #12 BA craft brewer last yr. Ommegang/Duvel Moortgat USA will be close to 70,000 bbls, with more than half of that Ommegang, the rest in imports. So in one fell swoop, Duvel would become a leading player in this fast-growing segment here in the US, with ambitions to ultimately be quite a bit larger yet. Deal is expected to close by the end of the year.

THE MARRIAGE OF 2 CRAFT BIZZES; APPROACHING $300 MIL IN REVS “This is the marriage of 2 craft breweries,” Duvel Moortgat ceo Michel Moortgat told CBN, “one from the old world and one from the new.” And as such, it is yet another example of globalization, the first major foray of a foreign brewer into the US craft space (Indian mogul VJ Mallya had an aborted craft rollup strategy in the 90s). With this acquisition, Duvel Moortgat will roughly double its US business to over $75 million. Tho Boulevard is a lot bigger than Ommegang/Duvel Moortgat USA from a volume perspective, it’s about equal from a revenue standpoint. With the acquisition of Boulevard, Duvel Moortgat’s total worldwide biz will approach $300 million and over 1 mil bbls. So this is not a small company by any means, but it is laser focused on the high end.

Duvel Moortgat went private earlier this yr. Before that about 25% of its shares were publicly traded. In 2011, last yr of publicly available data, it had operating profit of $40 mil on revs of $202 mil and it has grown since then. So this is highly profitable co too with operating margin close to 20%. It is reportedly acquiring $10-11 mil of EBITDA from Boulevard, paying a multiple that is roughly in line with industry norms, tho not the 12-14x that is often associated with strategic buyers among global brewers.

DIVERSIFICATION ONE BIG REASON FOR DOING THE DEAL Most of Duvel’s biz is in hard-hit Western Europe, including tiny Belgium (only about 7.3 mil bbls) where beer biz in decline in recent yrs. So diversification has to be key strategic aim for Duvel Moortgat. This deal will make it more balanced and less reliant on Belgium. It’s already been in US for some time (about 20 yrs), with a successful and growing business, in a fast-growing space (ultra high-end craft and imports). This deal will push US to around 25% of volume and over 30% of value, said Michel.

WHY IS JOHN MCDONALD SELLING? “PERFECT FIT” “I’m 60,” John told CBN and he “woke up a couple of years ago” and started thinking about “exit strategy. I’ve looked at all kinds of partners… talked to a lot of great people” and “at least had [exploratory] conversations” with them. And John “weighed” these various options. Duvel Moortgat only came into picture a few months ago. But the more he talked to the Duvel Moortgat folks, the more he liked their “vision and plan” and “fit…. Our brewery is better served longterm to partner with them than it is to go it alone,” John added. In a statement, John put it thus: “Duvel Moortgat’s commitment to quality and independence, and their proven record helping breweries fulfill their potential, made this a perfect fit and an easy decision.”

THE VISION: KEEPING THE BIZ INTACT; EXPORTS; INVESTMENTS This deal has lots of angles. Importantly, Duvel Moortgat is “absolutely” intent on keeping Boulevard intact and building upon it. “We don’t want to change daily operations,” said Michel. So this is not a synergy or cost-cutting play. Duvel Moortgat has done numerous smaller acquisitons in Belgium, keeping the bizzes there intact and growing them, according to Michel. Boulevard’s majority owner John McDonald will still come in daily, stay on the board of the combined US entity and will remain a “significant” shareholder of US co. That is “very important for the future” of Boulevard, said Michel. And it is important to John to sell to someone that would preserve Boulevard’s local status and take care of his 126 employees. John is also a prinicipal in an innovative sustainable glass co called Ripple Glass with a couple of other key Boulevard employees. Boulevard had a stake in Ripple too, which Duvel Moortgat will keep.

SALES FORCE ALMOST 50 STRONG; SMOKESTACK; DISTRIB NETWORKS; 1+1=3 The two companies have roughly equal sized sales forces of 24 people, noted Duvel Moortgat USA ceo Simon Thorpe. Combined that will be “way beyond” any similar sized brewery, he asserted. But Boulevard is in 25 states and 90% of its biz and its strengths are in the Midwest. Meanwhile, Duvel Moortgat USA is much stronger on the coasts and lion’s share of its biz is done in a dozen largely coastal and urban mkts. So there’s not that much overlap in their distrib networks and aligning their distrib networks is not a top priority. “It is much more important to have highly motivated distributors than to have consolidation for its own sake,” said Simon. The Boulevard brands are very likely to be expanded.

Could Boulevard ever brew Ommegang brands or vice versa? Tho no one will officially say that’s the case, Boulevard brewery is highly efficient and it’s reasonable to speculate that someday Ommegang brands could be brewed there. Meanwhile, Boulevard’s higher margin Smokestack Series is right in Duvel Moortgat’s wheelhouse and is viewed as especially promising, both here and abroad. “We will look where those brands can help each other,” said Michel. The idea is to “achieve that 1 +1=3,” he added. Duvel Moortgat’s global chief operating officer Daniel Krug will relocate to Kansas City for the first several months after the deal.

EXPORTS “CERTAINLY ONE OF THE PURPOSES” OF DEAL So said Michel. Nowadays American beer starts “to become very interesting” to Europeans and even Belgians. And as a Midwest heartland “icon,” the Boulevard brand could play well in Euro mkts, said Michel. Once again, the Smokestack Series “has the most potential here and in Europe.” Today American brewers “are probably more creative” than Europeans, said Michel. “We have the legacy” in Europe. US brewers “don’t have the weight of history,” he added. “That’s a very strong asset.”

DUVEL WILL INVEST $17 MIL OVER NEXT FEW YRS Boulevard has had some capacity constraints. Not in brewing or bottling, but fermentation and cellaring. So Duvel Moortgat has “an ambitious investment plan” and will break ground in 2014 on a project called Cellar 5. It will invest $17 mil spread out over yrs. This deal is far more about finding “top line synergies,” said Simon, and figuring out “what we need to invest to drive growth.”

BOULEVARD’S SLOWER GROWTH AND BATTLE IN HOME MKTS Boulevard has not kept pace with segment growth in recent yrs. It grew 1% in 09, 7% in 2010, 5% in 2011, before returning to double digit growth in 2012 and 8% growth this yr. Missouri is of course Boulevard’s #1 mkt. Boulevard did 37% of its biz there in 2012. So far this yr, Boulevard is up less than 1% in its home state, but that is based on volume. Since good chunk of volume has become Smokestack in recent yrs, biz has healthy value and profit trends, sources say.

This deal will make Duvel Moortgat a very serious player in US craft arena. But oddly, because of foreign ownership, Boulevard will likely no longer be a voting member of the Brewers Association. “Don’t get me started,” said John. First Beverage represented Boulveard in the sale. Other bidders at different points had reportedly included MC and an unnamed family office (a type of private equity firm). Yet Duvel Moortgat and Boulevard seem very much on the same page and a fine fit to start.