Four years after paying $1 billion for Ballast Point Brewing Company, Constellation Brands today threw in the towel on its big craft bet, announcing an agreement to sell the San Diego craft beer brand along with “a number of its associated production facilities and brewpubs” to Kings & Convicts, a little-known Chicagoland craft brewing company.
Specific financial terms of the deal were not disclosed, however, Constellation said it expected the transaction to close by the end of its 2020 fiscal year.
Speaking to Brewbound, Kings & Convicts CEO Brendan Watters said he expects the deal to be completed in about two to three months. Watters added that he negotiated the deal without a financial advisory firm and purchased the brand along with about a “half dozen private investors.”
The sale of the Ballast Point brand had been rumored for months. Watters told Brewbound the deal came about after he asked an unnamed Constellation employee in July if he could buy the brand.
“Sometimes you just gotta ask,” he said.
Asked what he sees in Ballast Point, Watters said it was a brand with “incredible liquid” and a lot of “real energy in California.” For Watters, the Ballast Point brand needed more love than Constellation Brands was giving it, as well as a return to an “independent” status and “not part of some conglomerate.”
Kings & Convicts will acquire Ballast Point’s main production facility in Miramar, along with California-based brewpubs including Anaheim, which is inside Disneyland Resort, Long Beach, and three locations in San Diego, as well as one in Chicago.
Not included in the deal is the $48 million, 260,000 sq. ft. Daleville, Virginia-based production facility Constellation opened in June 2017.
“Trends in the U.S. craft beer segment have shifted dramatically since our acquisition of Ballast Point,” Constellation Brands president and CEO Bill Newlands said in a press release. “Ballast Point remains one of the most iconic craft beer brands in the country and we’re pleased to transition the business to an owner that can devote the resources needed to fuel its future success. At the same time, this decision allows Constellation to focus more fully on maximizing growth for our high-performing import portfolio and upcoming new product introductions, including Corona Hard Seltzer, scheduled to launch this spring.”
Expected to anchor a craft portfolio for Constellation that included the Funky Buddha and Four Corners brands, the Ballast Point brand had served as an anchor of a different kind. In April, Constellation recorded a $108 million impairment charge to Ballast Point’s trademarks, essentially admitting it overpaid for the brand. The company recorded another impairment charge of $11 million on the marks during the second quarter fo 2020, according to Cowen. Constellation first recorded an $87 million impairment charge to the Ballast Point trademarks in June 2017.
Earlier this year, Constellation Brands shuttered several locations, including Ballast Point’s “Trade Street” sour beer and barrel-aging facility in San Diego, and a brewpub in Temecula; it also pulled the plug on plans to open a brewpub in San Francisco. The company also closed its taproom at the Daleville production facility.
During the Beer Marketer’s Insights Seminar last month, Constellation Brands CMO Jim Sabia admitted that the company’s “hypothesis was wrong” — instead of a couple of big players existing in craft, the segment turned “really local.”
Over the last two years, that trend turned against Ballast Point: Its production declined 13% in 2017 and 15% in 2018, when it brewed 320,000 barrels of beer. That was more than 100,000 barrels fewer than its 2016 peak of 430,917 barrels.
That put the brand in an orphaned position within its parent company. Constellation Brands — whose beer brands include popular Mexican import labels Modelo, Corona and Pacifico — noted that it could not devote sales and marketing resources to Ballast Point.
Watters said he intends to do just that.
According to the release, Kings & Convicts will retain Ballast Point employees. He told Brewbound that the company plans to hire 70 sales and marketing team members to support Ballast Point in major markets in California and on the West Coast, as well as major cities such as Boston and New York.
“We’re going to put boots on the ground in states that really matter,” he said.
The buyer isn’t well known. In fact, many within the industry trying to find out about Kings & Convicts and were left wondering as the Chicagoland outfit’s website crashed following the announcement. The company is self-described as a craft brewery that “offers great craft beer and golf simulators.” The Kings & Convicts brand is sold in Chicagoland and southern Wisconsin.
Watters admitted the deal looks strange on the surface.
“We’re tiny,” he told Brewbound. “We didn’t even brew a thousand barrels last year.”
In addition to acquiring Ballast Point, the 2-year-old Kings & Convicts will open a 48,000 sq. ft. production facility in Pleasant Prairie, Wisconsin, next year.
Watters said the plan is to continue Kings & Convicts as a regional Midwest brand, while maintaining national distribution for Ballast Point.
The sale of Ballast Point follows a flurry of craft M&A activity over the last month, including Anheuser-Busch InBev agreeing to purchase the remaining stake in Craft Brew Alliance, Kirin-owned Lion Little World Beverages reaching a deal for New Belgium, and Artisanal Brewing Ventures acquiring the No. 2 hard cider brand, Bold Rock.
A press release is included after the jump.