Fulfilling Your Strategy: The Merger of Boston Beer Co. and Dogfish Head Brewery
I had to read the headline a couple of times before it sank in. The merger of Boston Beer Co. and Dogfish Head Brewery sent shock waves through the craft beer industry. But in a lot of ways, it’s a natural product of the maturing of the craft beer industry and not all that surprising when you think about it.
From the perspective of the two breweries, the merger solved some problems each brewery had. For Boston Beer Co., most of their revenue growth has come from non-beer products like cider and seltzers. The beer portfolio was struggling along, and while they had some recent hits like Sam ’76, their forays into beer styles that were not core to them (like IPAs) had not gone as well. They also needed to think about who will become the face of the company going forward. While Jim Koch is no longer the CEO of Boston Beer Co., he is very much the face of the company and a larger than life figure within the craft beer world. At some point, Boston Beer Co. needed someone with a larger than life presence to be that new face. Merging with Dogfish Head Brewery provides the company with a beer portfolio that is strong where it is weak and provides them a new face for the future in Sam Calagione.
For Dogfish Head Brewery, their issue as they grew was expanding their reach coast to coast, which would require significant additional capital investment and access to distribution networks they did not have yet. They also had an exit strategy issue as Sam Calagione has been pretty vocal about not selling to one of the multinational brands. That left few options available to the company unless he wanted to be branded a sellout. The merger solves these problems as they will now have access to Boston Beer Co.’s production resources, scale, and distribution networks without getting additional capital. It also provides Sam Calagione with one of the few exits possible to him, and the ability to continue to build Dogfish Head and lead Boston Beer Co. in the future, effectively getting a way to monetize his hard work and efforts plus remain involved in the company without selling out.
If you were wondering why Sam and Mariah Calagione received shares of Boston Beer Co. stock in exchange for their stock instead of cash, it’s because they will get to defer the tax gain on the transaction. Instead of getting a huge tax bill in 2019 from this merger, they will only pay capital gains tax when they sell the shares they received.
So what does this mean for the industry as a whole? I would fully expect to see more craft on craft mergers and acquisitions. In our Unfiltered event this past year, I mentioned this as an expected trend in the future. Not all mergers will be big multi-million dollar deals like this one, but they will start to become more the norm as breweries look to find other breweries that complement what they are currently doing, fill gaps, and further the strategic goals of the brewery.
For your brewery, I think this provides another reminder to look at your strategic goals of where you want your brewery to go. Whether that is opening a second location, entering new markets, or achieving long-term growth, identifying your long-term strategy (including your desired exit strategy) is key to making your day-to-day decisions. The long-term success of your brewery is driven by the choices you make now, and having a long-term plan provides you with the roadmap to make those strategic choices.