ABI Acquisition vs. PE Firm

The ABI typically bullies other craft brand companies off of shelves and tap lists with the overall goal of beer domination and all funds going to ABI.

 

^ This and they go even further by commandeering hop markets they have rights to. And I'm sure there's even more to it than we're aware of.

Everyone is after profits, but ABI does it in a way that is detrimental to the rest of the industry.

 

I actually agree with @ontheterrace . Yes, AB InBev sucks and I mostly don't support them or their practices. (Exception: BCBS which I usually pick up a couple of bottles due to hype rather than actually enjoying it.)

But the whole purpose of a Private Equity firm is to make money and doing whatever it takes to flip an investment into a profit. That is in some ways shadier than ABI, because at least some people within ABI care about the product: beer. For a PE firm, breweries are just pawns for what they really want.

 

Is it even possible to "commandeer" something you have rights to?

 

I guess it depends on what you care about...

PE firms can definitely work on cutting costs, overstretching the brewery to boost it's perceived value before selling, and some other things that are detrimental to the long term future of the brewery and its beer.

But ABI has distributors, lobbying, and extreme knowledge of the market they are working on. They can leverage new and better brewery acquisitions to influence and damage the craft beer market even if it's slow progress...

 

Well if you want to be outraged it can be described that way whether that is the way it happened or not.

 

Before anyone who reads your post buys the narrative presented by Paste Magazine, I'd urge them to read through this thread:

https://www.beeradvocate.com/commun...f-south-african-hops-to-indie-brewers.509891/

I would also argue that the distinction between the mentality of ABI and mentality of a private equity firm is largely superfluous. The primary difference is in the resources at hand between the two. Which is a valid thing to point out, but it also means that if you're cool with PE ownership and not ABI ownership, it's not the strategic principles you care about, but the fact that ABI just has more power to execute that strategy.

 

Well actually this is self contradictory. If they didn't pay attention to keeping their customers (beer drinkers) they'd have no way of keeping their shareholders happy because they would already have gone out of business years ago.

 

I suppose that's a fair point except I believe they violated a bunch of contracts with hop brokers by doing so. I'm not too privy to the whole situation but I don't think it was as simple as them just holding on to their hops

 

It seems there was always only one hop broker involved who built the market for the SA hops in the US. (See the posts by those brewers in the other thread.) Apparently that broker had no contract and was relying on the surpluses being released by SABMiller and expected that to continue under the new ownership of those hops. If he had had an existing contract with SAB Miller for a certain number of pounds of hops we'd expact that contract would have to be honored by ABI since they would also acquire any existing debts and contracts along with their purchase the assets of SABMiller.

Remember that original memo on which the Paste article is based was written by only one hop broker who found he had to disappoint his clients since there was no surplus to be acquired.

 

I don't view the difference is entirely resources available... It's also experience.

ABI has over a century of experience acquiring knowledge of how to control and take over the market. Private Equity firms seem to just apply business strategies that work in every industry.

With resources it's not just money... Private Equity firms don't have the infrastructure that ABI and other big beer corporations have.

ABI, Heineken, and MillerCoors already have distribution channels throughout every tiny market. Goose Island and Lagunitas now have the ability to get into the small towns throughout Texas. That means that those breweries can now vastly expand their market while forcing small breweries who would otherwise look to grow in untapped markets very difficult competition.

Private Equity firms give money to grow and spread shitty American business practices, but they do not have the infrastructure or experience to really threaten the market.

 

But did they actually do that?

 

Yes, the experience portion is a fair point. Although strictly speaking, experience is a resource. And it doesn't really change my core point, which is that PE firms and ABI share the same strategic mentality. ABI is just more capable of effectively carrying out that strategy, given their resources (experience, infrastructure, money).

Maybe that doesn't matter in the grand scheme of things. I point it out mostly because of how many anti-ABI arguments delve into morality and ethics. And if ethics is the issue, then people should be just as put out by PE firms buying into breweries. Heck, you could argue that a PE firm, from a mentality standpoint, is *worse*, because they are literally in it ONLY for the money. At least ABI is a brewer--a multi-national, faceless, conglomerate brewer, granted. But a brewer nonetheless.

 

I'm not so sure this is the case. Is profit the main motive of a PE firm? I'd agree with that. The "whatever it takes" is what I disagree with. Are there firms like that? Sure, I guess, some are.

But I think a more likely scenario is that they see a business that either doesn't realize their potential or understands their potential for return that is going to go unmet due to lack of funding. I think it's at least as likely the PE firm is investing in the vision of the brewery owner(s), though that does come at a cost to the owner(s) (in the profits the PE firm takes).

Now if both sides are seemingly wrong, it can easily turn into the situation you describe, with the PE firm exerting themselves AMAP to get the largest part of their investment back. (Edit: but what the PE firm can do is most likely going to be limited to be borne by the one brewery's owners).

 

Ahh, so that's why Dogfish Head sold a minority share of the company to a PE firm. They wanted to be able to employ "shitty American business practices."

 

To add in another potential difference, you don't have to be anti-corporate to find the sheer size of many corporate entities today to be a potential cause for concern. AB was a huge company that joined InBev to become an even huger company which joined SAB Miller to become an even huger company still.

When a company that is already gigantic continues to add to their mass it seems fair to not see it in exactly the same light as one might an acquisition by an average private equity firm or a smaller corporation. I know somewhere between jack and squat about this topic but it seems like an apples to apples comparison would be something like an acquisition by the Carlisle Group which, if my google-fu is correct, is roughly as large as ABI.

Have any of the truly global private equity firms bought up any craft breweries?

 

Below is a post I made in a past thread which relates to a brewery selling to ABI vs. PE:

In an article one of the former owners of Elysian Brewing, Joe Bisacca, made mention that the decision was made to sell to AB InBev even though it was not the highest offer since the overall thought was that it would be ‘better’ for a brewing company be the new owner:

“According to Bisacca, Elysian, which generated revenues of $24 million between its pub and production businesses in 2014, turned down offers that came in financially above what A-B was offering.

“My upside could have been four or five times what I got,” he said. “But the bottom line was not a factor. It was the overall stewardship of the brand and who we wanted to be.”

http://www.brewbound.com/news/inside-b-inbevs-acquisition-elysian-brewing

Needless to say but Dick Cantwell (who was also one of the former owners of Elysian Brewing) did not want to sell to AB InBev since he had (and has) a differing view on the ‘merits’ of a mega-brewing company like AB InBev.



There is another ‘article' with Joe Bisacca which discusses the steps/process/thoughts of the sale of Elysian Brewing:

“On alternative options

While selling to A-B InBev may be the surest way to grab headlines, it’s hardly the only method of succession. If not for the strategic partnership, Elysian could have aligned with a private equity company or even implemented an employee stock ownership program (ESOP). Bisacca explained why neither of those alternatives was fit for the Elysian model.

ESOP:

“You can do ESOP, selling to your employees. Sometimes that works, sometimes not,” he said. “You need to have a certain critical mass. With the restaurant chain, the ESOP kind of falls apart quick because those are very transient employees and it’s hard to encompass them.”

Private equity:

“When you go to private equity firms, well great you’re along for the ride for three-to-five years but then they’re going to sell it and you don’t know where that’s going to go.”

Before ultimately selling to A-B, the company had talked with five private equity firms, he added.

On considerations before “signing on the dotted lined.”

“I think of stewardship of the brand; I think of customers that we have, doing right by them because they’re the ones that supported us and kept us in business all these years; I think of my staff more than anything else. Are they in a good home? Are they going be treated well? What do their benefits look like?” he said. “Who’s going to take this package that we created and treat it the best?”

“At the end of the day, the A-B model sort of answered those questions for me,” he added.

On disagreeing over succession plans

Bisacca said that as a C corporation, Elysian had a fiduciary responsibility to their shareholders to vet the prospect of selling when the opportunity is presented.

Bisacca said there were “four or five pockets” among company executives who were split on succession.

“If you have one person that’s very critical of the opportunity you have, it makes you think about it, ‘is this really the right thing? Should we really do this?’ It makes you want to vet things a little bit more. That process, even though if it’s painful, you want to go through because it makes the decision more valid.”

http://www.brewbound.com/news/event...-bisacca-on-selling-elysian-to-anheuser-busch



One lesson that I have learned from this is that it is likely not possible to keep all of the owners and stakeholders ‘happy’ no matter what decision is made.

Cheers!

 

Private equity firms and buyouts cannot be lumped into one category. Each situation will be different, depending on the goals of the firm and the goals of the particular purchase.

However, in general, a private equity purchase does not have the intent of long term ownership (although there are exceptions, where the goal is cash flow from the purchased company).

Much of the time, the goal is to guild the lily and resell for a profit or to do an IPO and profit from the sale of shares.

In general (again, there are exceptions), a private equity purchase is at odds with the goal of having a long-term successful company, and especially at odds with any goals not associated with making money.

 

Definitely, if you are bringing in new owners, there are always issues, conditions, challenges that each owner [group] needs to determine what they are willing to give up and what risk. To the OP's question, I think there's the concept that a PE firm still leaves the brewery outside the "monopoly," so there's still a chance there will be no broader "ill effects" from the monopoly gaining more power. As to what the "ill effects" of any additional power of the monopoly are, and how rational or not they are... we all know there are quite a few other threads that contain those opinions.