More Craft Beer Mergers with a Chicago Face: Lagunitas & Virtue Cider

More Craft Beer Mergers with a Chicago Face: Lagunitas & Virtue Cider
From 2009: A Heineken beer bottle tree in Shanghai.

Two craft brewers with a Chicago ties have undergone the merger route in the past four days.

Tuesday morning, the beer world was hit with an announcement that Lagunitas Brewing Co., the Petaluma, CA-based beer maker with a huge Chicago brewery, had sold a 50% share to Heineken N.V., currently the world’s third largest brewing company. The transaction is claimed to be a 50/50 joint venture, aimed at getting getting Lagunitas capital for continued expansion, and to get a foothold into an international market with a growing taste for American craft beers.

AB-GooseOn a smaller, yet similar scale. it was announced Friday that Greg Hall has sold a majority stake in his Virtue Cider to Goose Island Beer Co. Hall is the son of Goose Island founder John Hall, and left his position as Goose island’s brewmaster to start Virtue Cider when the brewer was sold to Anheuser-Busch InBev in 2001. Full details can be found in this Chicago Tribune article by Josh Noel.

These have been but two of the many buyouts and acquisitions to hit the U.S. craft beer world since ABI bought out Goose island. Other transactions have included Duvel merging with Firestone Walker after buying out Boulevard, Anheuser Busch also buying into Blue Point, 10 Barrel, and Elysian Brewing; and taking bigger stakes in the Craft Brew Alliance, owners of Widmer Brothers, Kona Brewing and Redhook. Founders sold a 30% stake to Spanish brewer Mahou San Miguel, as Georgia’s Terrapin did to MillerCoors.

The dog and pony show returns to Chicago

When one of these big deals goes down, there is usually a visceral reaction that said craft brewer has sold out to the Big Fizzy Water, and on the same level, I tend to agree. There’s also a concern that the big brewers might be buying up the little guys for the express purpose of shutting them down. This is what Heineken has been accused of doing to many small brewers, and what Miller is said to have done to Celis White.

Other beer fans will be wary of a possible downturn in quality for their formerly favorite brands. The boards I follow have often erupted into discussions about how Goose Island’s IPA or Honker’s Ale have been “off” since production was shifted to Anheuser-Busch breweries in Ft. Collins, CO or Baldwinsville, NY. However, the same move has meant more capacity at the Fulton Street brewery to make the higher-end beers, and room to install a tap room, not to mention the installation of a barrel warehouse and a regular release of four or five Bourbon County brand beers in 7 cities around the country. But I must acknowledge that one bad sales quarter could see the whole works bulldozed overnight.

It seems the main reason given when the larger craft brewers go in for these partnerships today is access to capital and a chance to expand markets. Tony Magee’s blog post about the merger mentioned the great reception Lagunitas got in the Irish market, and an apparent thirst for American-style hoppy beers in Europe. Obviously, an affiliation with a European corporation would make that go easier. In return, Heineken will get its first stake in the U.S. market; until now, the closest they got to an ownership position was their purchase of Mexico’s FEMSA, brewers of Dos Equis, Tecate, and other Mexican brands seen on US shelves. Noel’s article notes that Hall would like to see Virtue expand production and markets, and maybe come up with a flagship cider for 12 oz. bottles.

But the article also notes that Virtue has had trouble paying one of its apple suppliers, and suggests that it might be somewhat undercapitalized. Tony Magee’s book, “So You Want to Start a Brewery,” is one of the few craft beer hagiographies to go into the details of finding money for your crazy venture, like refinancing debt at a lower interest rate and using the savings to buy equipment, or simply convincing bankers that they should collect loan payments from Lagunitas instead of their current bank (though he has nothing but good things to say about the handshake deal that got Lagunitas its Chicago brewery; and with no government deals or tax rebates). It might be understandable that after 20 years of hunting down funding, building his own equipment and designing his own labels, Magee might want to kick back a bit. Things change when you hit your 50s. I should know.

The growth in the craft beer industry can be shown by the fact that Goose island was valued at $38.8 million when it was sold to Anheuser-Busch in 2011. Lagunitas does have much more brewing production than Goose had four years ago, and more distribution, which only partly explains why the deal with Heineken valued the company at $1 billion.

Some of us beer geeks will loudly declare that they will never touch a Li’l Sumpin’ Sumpin’ again, or throw in a little sour grapes and claim it doesn’t taste as good now, anyway. Other will just say “as long as the beer’s still good, I’ll drink it.” In the meantime, I wonder if this deal will result in some Lagunitas brewers using the chance to break out and start even more microbreweries in town.

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