Constellation Brands Inc., also known as the largest wine producer on the planet, announced Monday that it acquired San Diego-based Ballast Point Brewing & Spirits Company, a 19-year-old craft brewery, for the whopping sum of $1 billion.
The staggering price tag may echo the amazing potential of the market for craft brews, which is continuously expanding as consumers are growing tired with dull industrialized tastes and aim at bolder and bitter flavors.
Following the announcement, the national Brewers Assn said that the price was ‘hard to digest,’ but it does reflect where growth lies. The group explained that Constellation Brands is 100% sure that the investment would continue to grow and return the initial investment.
According to a Ballast Point report, beer shipments are slated to more than double by the end of this year from last year’s 123,000 units. As a result revenue is also expected to be a lot higher than last year’s $50 million.
This piece of information may (partially) explain why the alcoholic beverage conglomerate chose to invest $1 billion in the business. But acquiring a company for more than 20 times its annual revenue may still sound obscene. Still, the expected super-growth estimated for next year may offset losses.
Additionally, global craft beer industry is on a winning streak despite flat growth of regular beer in the U.S. Shipments for craft brews jumped 18 percent in 2014 and they are expected to rise even more, recently said the Brewers Assn.
So, no wonder major beer makers recently changed direction. For instance, Heineken heavily invested into California-based Lagunitas Brewing Co. and now owns a 50 percent stake, while MillerCoors bought Saint Archer Brewing Co. None of the companies disclosed the price of their deals, but it must have been high.
People across San Diego are still stunned by the jaw-dropping price tag, despite their town being home of leading U.S. beer producers including Green Flash and Stone.
Kevin Hopkins, head of the San Diego Brewers Guild, said that his first client that came into his office today was still shocked by the size of the deal. Ballast Point’s CCO Earl Kight was also stunned a day before.
Analysts explained that the surge in craft-beer agreements reflects beer makers’ efforts to diversify their portfolio and revive stalling sales. This may explain why Anheuser-Busch InBev agreed to acquire SABMiller for the astronomical price of $110 billion.
All in all, craft beer holds great potential. Last year, retail sales were at $19.6 billion, from $8.8 billion in 2010. Shares also jumped to 11 percent from 4.9 percent in 2010.
Image Source: Flickr
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