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Feb 24, 2015
Boston, MA
Brew Talks Boston 2015
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Brew Talks Boston Recap: M&A Activity and Building a Beer Culture

dan kenary brew talks

From left: Brewbound editor Chris Furnari, Harpoon co-founder Dan Kenary, Northeastern University professor Ted Clark, and angel investor Derek Nemeth discuss succession strategies for craft brewers at Brew Talks Boston

 

Brewbound kicked off its 2015 slate of Brew Talks events this week at Harpoon Brewery’s beer hall in the seaport district of Boston, Mass., where more than 130 people filed in to catch industry heavyweights from the city sound off on issues both local and national in scope.

Kicking things off, a panel comprised of Jean-Claude Tetreault, co-owner of neighboring Trillium Brewing, Peter Burke, national sales director of Cisco Brewing on the island of Nantucket, and Megan Parker-Gray, the bar manager of beer hotspot Row 34, tackled the myriad elements shaping the city’s emerging beer culture.

Later, Dan Kenary, co-founder of the evening’s host brewery, Harpoon, espoused some of the virtues he recently picked up going through the process of transferring nearly half of his company’s shares into an Employee Stock Ownership Program (ESOP). Joining Kenary in that discussion was Ted Clark, executive professor of entrepreneurship and innovation at Northeastern University, and Derek Nemeth, a craft brewery angel investor and strategy advisor, who are both well versed in the hot topic of M&A activity in beer and beyond.

Starting there, Kenary candidly explained how he and former partner Rich Doyle got through the process of becoming employee owned, considering one was interested in selling to private equity or a strategic partner, while the other hoped to remain independent.

Certain talking points have been rearranged for clarity and cohesiveness.

Kenary: Rich made it clear that he was open to a transaction, looking for some liquidity. So we agreed, we’d had a great partnership, let’s look at all the different options.

We decided on an ESOP because it’s consistent with who we are as a company and what our future idea was for the business.

There’s a misconception, I believe, out there that if you go the ESOP route, you have to sell for less money. That’s really not true. You go through a full fair valuation process with an outside party that looks at all kinds of different comps that determine what the fair value of your business is.

I was not interested in selling. I had to get a multiple that Rich was comfortable with. That’s one of the reasons we did the research we did, talking to bankers and private equity guys, to get a sense of what they were willing to pay for a minority stake in the company.

Touching on the future of such deals – whether through ESOP, private equity, or strategic partnerships – Nemeth suggested more are on the way.

“It’s a commodity business and right now we’re in an expansion phase,” he said. “The nature of this business is a scale business. It’s very capital intensive, you have to spend a lot of money to make beer and a lot of these guys have to take on debt to do it. Scale matters and it’s important. This industry will get back to consolidation eventually.”

Nemeth personally believes, however, that there’s a limit to how far Anheuser-Busch InBev, the most active strategic partner of the past few years, will be reaching into the craft segment.

“Totally speculating, I don’t think A-B InBev will do 50 deals. It’ll probably be somewhere under 10.”

As for Clark, he reminded everyone that all businesses sooner or later face one of three fates, even if young startups don’t think that far ahead. They either shut down, there’s a sale, or some type of succession, he said.

“They’re all looking forward to one of the three ‘S’s’, and if they’re prepared, they’ll fare better than if they’re not prepared.”

During the earlier panel, Tetreault explained how difficult it is to open a brewery within city limits, as opposed to launching in one of the surrounding neighborhoods commonly considered to be a part of a Boston.

Tetreault: We evaluated tons of spaces, we had an incredibly tight budget and eventually we settled on the spot in Boston because it was in Boston and I was overly optimistic about what people were telling me about being able to get through a zoning variance process, building permit process because of my innate tenacity about details and paperwork and so forth.

But it was a nine and a half month zoning variance process and then we could apply for a building permit, which took three and a half months. In the time it took us just to start swinging hammers, you would be able to start brewing operations in another facility in a bordering town.

You need all kinds of infrastructure that a law office doesn’t need, that a financial institution doesn’t need… that infrastructure is not easy to find. Or if it did once exist in sort of an industrial area in Boston, it’s sort of been co-opted and the price per square foot has gone through many multiples.

Beyond some of the red tape brewers must break through in order to even open in the city, Burke said more education in the retail tier is needed in order to build a stronger beer culture in the city.

“There’s not a lot of retailers that haven’t adopted that swath of dedication to a craft lineup,” he said. “[We need to be] educating retailers to their own businesses, because they’ve been so successful with what they’ve been doing for so long. I feel like the attitudes of consumers are changing faster than the retailers are catching up.”

But Parker-Gray, who works for one of the city’s most prominent beer bars, is optimistic for the future in the city regardless.

“Maybe we are a couple steps behind a couple other cities,” she said. “But the fact that there is spark and there’s passion and there’s energy and people that are doing things that are exceptional only pushes me to see that we’re moving forward.”

Both talks are available on the Brewbound YouTube channel and have been embedded for your convenience.