Constellation to Buy Ballast Point Brewing for $1 Billion

Corona And Modelo Beer Deliveries Ahead Of Constellation Brands Earnings

Constellation Brands, which already owns Corona and Modelo beer, is adding Ballast Point to its lineup.

Photographer: Susana Gonzalez/Bloomberg
  • Deal bolsters beer offerings for U.S. seller of Corona, Modelo
  • Ballast Point expected to have 2015 sales of $115 million

Constellation Brands Inc., the maker of Robert Mondavi wines and Svedka vodka, agreed to acquire Ballast Point Brewing & Spirits for $1 billion to add a line of craft brews to its beer portfolio.

The deal is expected to be completed this year and will be financed with cash and debt, Constellation said Monday in a statement. The takeover will be neutral to Constellation’s profit in its current fiscal year and add about 6 cents to per-share earnings the following year, the Victor, New York-based company said.

Constellation, which had long focused on wine and spirits, has found success in the beer business since acquiring the rights to sell Corona and Modelo beers in the U.S. in a $5.3 billion deal with Anheuser-Busch InBev NV in 2013. San Diego-based Ballast Point was started in 1996 and has expanded rapidly as Americans increasingly turned to craft brews. Ballast Point’s sales volume is expected to double to almost 4 million cases this year, with net sales hitting $115 million, Constellation said.

Buying Ballast Point was “a natural next step for Constellation in that they’ve got a great beer distribution business but could stand to put some more brands on it,” said Tim Ramey, an analyst at Pivotal Research Group LLC. “It’s arguably not the last time they’re going to do a beer deal. This gives you a template for other deals that they certainly could do.”

Constellation rose 2.3 percent to $135.26 at the close in New York. The shares have gained 38 percent this year. Samuel Adams-maker Boston Beer Co. also rallied as the deal increased speculation that it may become a takeover target. The shares rose 3.8 percent to $209.57.

Beer Consolidation

The deal continues a trend of consolidation in the brewing industry, led by AB InBev’s planned $107 billion takeover of SABMiller Plc. But even before AB InBev made its formal offer for SABMiller last week, brewing companies had been snapping up craft producers, in whole or in part, to get a piece of the fastest-growing segment of the U.S. beer market.

Since 2011, AB InBev has purchased Goose Island Brewing in Chicago; Blue Point Brewing in Patchogue, New York; 10 Barrel Brewing in Bend, Oregon; Elysian Brewing in Seattle; and Virtue Cider in Fennville, Michigan. In September, MillerCoors agreed to buy San Diego’s Saint Archer Brewing Co., Heineken NV purchased a 50 percent stake in Lagunitas Brewing Co., and AB InBev said it would buy Los Angeles-based Golden Road Brewing.

“Craft is the growth engine of the beer industry going forward,” Julia Herz, a spokeswoman for the Brewers Association, said in an e-mail. “The fact that a Mexican-import company -- the other growth segment -- made this deal shows the solidity of craft demand.” 

Avid Following

Ballast Point has an avid following among beer enthusiasts. The brewer’s Sculpin, an American India pale ale, is rated world class on the BeerAdvocate website, a popular forum for beer lovers. The company sells its beer in 30 states and 10 countries, leaving Constellation room to accelerate its growth by expanding to new territories, according to Robert Ottenstein, an analyst at Evercore ISI.

The deal values at Ballast Point at a mid- to high-teens multiple of its earnings before interest, taxes, depreciation and amortization, Constellation said.


‘Meaningful Synergies’

Constellation “must see pretty meaningful synergies in the business” to be able to pay that price, Ramey said.

Constellation Chief Executive Officer Rob Sands said in an interview that Ballast Point’s value comes in its fast-paced growth and high prices. Constellation prides itself on being the biggest provider of growth in beverage alcohol in the U.S., and Ballast Point will help the company keep that title by getting into the rapidly expanding craft beer industry, he said.

With average selling prices at about $355 per barrel, Ballast Point also lies on the very premium end of craft beers, which typically run at about $270 per barrel, he said. That makes Ballast Point well-positioned to join Constellation’s portfolio of premium brands including Opus One wines, which costs $250 per bottle. 

“We have no interest in anything below the high end of beer, so this is a particularly good opportunity," Sands said. "Ballast Point is so premium that it actually enhances our premium position in beer even above where it is."

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