Glenboden M & A Originations

Will the major brewers acquire more craft regional brewers ?

Priority Rating priority rating 2
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Origination Status proprietory origination, May 2012
Asset Boston Beer Company Inc (USA), no.1 domestic craft regional beer producer
Buyer candidates include SABMiller, Heineken, Sapporo
Seller founder Jim Koch and public shareholders of Boston Beer
Buyer Rationale greater commercialisation of 'Samuel Adams' brand, portfolio premiumisation
Seller Rationale attractive valuation
NBs Boston Beer claims to have attained 1% market share in US beer
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In recent years a big re-invention story for the beer industry has been craft regional beers, especially in the USA but also now in parts of Europe. We believe this is driven by that segment being a conduit for the majors to both growth and premiumisation, and see more M&A activity there going forward.

High-flying case studies ...To underline the importance of the craft regional story, let's take Tenth and Blake in the US, built by MillerCoors since 2010; and Sharp's in the UK, bought by Molson Coors in 2011.

Tenth and Blake has been the golden boy of MillerCoors' results in recent quarters, growing in double digits for example in Q4 2011. Its portfolio includes Blue Moon in Denver, Colorado and Leinenkugel in Wisconsin.

Meanwhile Sharp's Brewery makes cask conditioned beer in Rock, Cornwall UK, growing since 1994 to become the largest brewer of cask beer in the South West and brewer of Doom Bar, one of the UK's fastest growing beer brands.

... 'Samuel Adams' a big prize ...In our view Boston Beer's 'Samuel Adams', that icon of craft brewing in the USA since the 1980s, illustrates both the pitfalls and the opportunities of that segment, and the reason why it's so attractive to the beer majors now.

The company's growth rate has been impressive (see chart), and its EBITDA margin's grown to over 20%, from under 10% in 2008. It's recently been announced that sales and EBITDA have grown further in Q1 2012.

However the company's reliant on line extensions (50 different beer styles); meanwhile its advertising, promotion & selling costs are nearly 30% of sales - it would benefit from the marketing & distribution clout that a beer major brings.

With its full profitability, our Boston Beer's valuation at x12 EBITDA is in line with recent comparables like StarBev; lower than the x16 commanded by arguably another 'ambassador' brand needing greater commercialisation - 'Grolsch' of Holland, bought by SABMiller in 2007.

... link with import brands is keyComing back to Tenth and Blake, the key strategic strength of that business is its premiumisation focus on craft regional beer in combination with import brands like Peroni and Pilsner Urquell, especially in the on trade segment.

Our contacts at SABMiller have explained to us the critical importance of this combination, in bringing together the extrinsic values of import brands with the intrinsic qualities of craft regional ones; what one might call a 'green bottle plus brown bottle' strategy.

More practically, a craft regional approach facilitates exploiting new 'liquids and packs', as exemplified by Tenth and Blake's acquisition of Crispin Cider earlier in 2012. It also anticipates the evolution of IPTV and localised advertising.

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Size (€ mln) 1.155
Sector beer
Asset Quality USA no.1 craft regional
Seller privately controlled plc
Buyer large plc
P/S 2,6
P/Ebitda 12,0
Type enterprise value estimate
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