In a sure sign the craft beer market is getting crowded, Boston Beer (SAM) recently announced that it was increasing the amount it spends on advertising.
According to the Brewers Association, the trade group for craft beer in the US, the number of craft brewers in 2013 increased by 15%, resulting in lost market share for America’s biggest craft brewer.
While Americans are drinking less — overall beer shipments in first half of 2014 down 0.1% — production volumes for craft beer increased by 18% in the first six months of this year to 10.6 million barrels. The Brewers Association says the craft beer market has doubled in just four years. Craft beer producers are single-handedly keeping the beer business afloat. And even though the maker of Sam Adams, Angry Orchard (very tasty) and Twisted Tea is losing market share, its business is doing just fine thank you very much.
While purists definitely cringe at the thought of craft brewer IPOs, here are three I’d like to see happen:
Craft Beer IPO – New Belgium Brewing
The third-largest craft brewer by volume, I drank my first Fat Tire Ale while visiting San Diego several years ago. A friend who’d driven from Toronto to meet up with me and my family for a week’s vacation had stopped at New Belgium’s brewery in Fort Collins for a little tour and beer tasting; we were both hooked. Unfortunately Fat Tire’s not available in Canada.
Great craft beer aside, there’s another reason I’d like to see New Belgium IPO and that’s Kim Jordan, its co-founder and CEO. I’m a big believer in women in leadership. At New Belgium not only is Kim the CEO but Christine Perich is CFO/COO with several other women holding senior management positions. In a male dominated business it’s nice to see women kicking butt while also contributing to the lives of so many in Fort Collins and elsewhere.
New Belgium’s 2013 revenue was $190 million. Assigning an enterprise-value-to-revenue multiple similar to Boston Beer, an IPO would value the company at $650 million. There’s only one problem with this idea — the employees own 100% of the company. In December 2012 Jordan and her family sold their controlling 59% stake to employees who already owned 41% of the company. Any plans for an IPO would have to be approved by the employees and that’s unlikely given the employee stock ownership plan (ESOP) was originally created to ensure a seamless transition while remaining independent.
Craft Beer IPO – Deschutes Brewery
I once dated a girl from Oregon and as a result spent a great deal of time there. I saw a lot of the state but one place I never got to was Bend, a small town of 80,000 people about 3 hours south of Portland. Back then the area was known more for its outdoor activities such as skiing and golf. Fast forward 20 years (this was the mid-1990s) and it is just as well known for its craft beer production.
Bend has the second highest number of brewing establishments in the state behind only Portland, which leads by a comfortable margin. Of the 18 or so breweries or brewpubs in the Central Oregon town, Deschutes is by far the biggest producer with 285,000 barrels in 2013 and capacity for 450,000. Not only is it the biggest producer in Bend it’s also the biggest in Oregon and the sixth-largest in America.
While it only has one beer in Beer Advocate’s top 250 — The Abyss is ranked 32nd — I suspect its Oregon origin means every beer in its lineup is at the very least … drinkable. As for the company itself, founder and CEO Gary Fish was given the Ernst & Young Entrepreneur of the Year award in 2013 for the Pacific Northwest region. It gives $1 for every barrel it sells to charities meaning it raised $285,000 in 2013 just by opening its doors. It’s no wonder Outside Magazine named it one of America’s Best Places to Work in 2013.
When it comes to craft beer producers, social consciousness is the norm. Unfortunately, like New Belgium, Deschutes has an ESOP, but in this instance employees currently only hold 8% of the stock so it’s entirely possible that Fish could decide to cash out before the ESOP is able to acquire a controlling interest. InsideView pegs Deschutes’ 2013 revenue at $109 million which suggests an IPO value of $370 million.
Craft Beer IPO – Brooklyn Brewery
Of the trio of craft beer IPOs, this is the only one I can buy here in Ontario; I’ve been able to do so for a few years now. That’s probably because their east coast location makes it much easier to ship the product north of the border. I’m very thankful because their lager is a nice one.
Interestingly, 80% of its beer is actually brewed in Utica, New York, rather than in Brooklyn itself. However, that’s scheduled to change. It recently announced plans to build a $70 million brewery on 20-25 acres on Staten Island, just across the bridge from its Williamsburg operation. Although details are still sketchy the move will bring production entirely back to New York City, which is a big win for New York craft beer enthusiasts.
Brooklyn Brewery currently produces 260,000 barrels of craft beer. The new brewery would push that number to 450,000 with potential for 1 million barrels down the road. Seeking funds from the New York City Regional Economic Development Council in the form of a grant, an IPO in this particular situation might make a lot of sense because any proceeds from the sale of stock could be put directly to funding the new brewery. I’d put Brooklyn’s value at about the same amount — $370 million — as Deschutes Brewery although a Business Insider article from July suggests revenue was only $50 million in 2013, which would cut its overall value by at least half.
Whatever the value this is the most likely of the three to IPO anytime soon. In the meantime if I want a little taste when it comes craft beer companies that are publicly traded I’ll have to make do with either Boston Beer or Craft Brew Alliance (BREW), makers of Kona, Widmer Brothers and Redhook, both of which are excellent long-term investments.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
