Texas’ Deep Ellum Brewing has sold a majority stake to Storied Craft Breweries, an upstart growth capital group founded by the creators of Effen Vodka and led by beer industry veterans Steve Berg and Adam Lambert.
Under the deal, Storied Craft Breweries will acquire a 56 percent stake in Deep Ellum, one of the fastest growing craft breweries in Texas, at least in part by buying out more than 20 minority partners from earlier investment rounds. The brewery will also receive $8 million in growth capital.
In an interview with Brewbound, brewery founder John Reardon said the deal would enable Deep Ellum to “clean up” its capital structure, something he sees as necessary for growth. Reardon, who will stay on as the CEO, will simultaneously increase his stake in the business, he said.
“Back when we were just trying to get our doors open, we’d take a check from just about anyone,” Reardon said. “Now, I want to align myself with strategic partners who understand the long-term play of craft beer and can help me realize my goal of becoming a dominant brewery – not just in Texas, but also in the region.”
Reardon, who will now own 40 percent of the company, has also agreed to a long-term employment contract that includes early resignation penalties should he decide to exit the business within three years, he told Brewbound.
In addition to Storied Craft Breweries’ investment, Deep Ellum will also receive a new line of credit from Bank of America, which will purchase debt previously owned by Regions Bank.
As a result, the brewery will now be able to tap into more than $10 million worth of growth capital, which Reardon said would be used to further expand the Deep Ellum brand throughout Texas and beyond.
“This is the fastest, most entrepreneurial way to allow me to do what I want to do, remain independent, and build a brand,” he told Brewbound.
The deal is Storied Craft Breweries’ first since formally announcing its intent to invest in craft beer companies in October.
“Deep Ellum is exactly what we were looking for size wise,” said Steve Berg, one of the founders of Storied Craft Breweries. “It is a serious player in Texas already and there is tremendous growth potential in the state. And someone like John, who is passionate about what he is doing, he fits exactly what we have been looking for.”
Deep Ellum has made headlines in recent weeks as it awaits the final decision in a lawsuit it filed against the Texas Alcoholic Beverage Commission last year over the constitutionality of a state law that prohibits licensed breweries from selling beer to go from the point of production.
The company expects to produce 33,000 barrels of beer in 2016 and is in the process of expanding operations its brewery in Dallas — installing a 60-barrel brewhouse. It also recently started contract producing kegs of its flagship Dallas Blonde Ale at nearby Grapevine Craft Brewery. It will soon have the capacity to produce as much as 90,000 barrels, Reardon said.
The deal with Storied Craft Breweries began taking shape seven months ago, Reardon added, noting that Craig Farlie of Farlie Turner & Co, a boutique investment-banking firm that specializes in middle market transactions, introduced the two companies.
On its website, Storied Craft Breweries describes itself as a company that can “help create efficiencies and scalability while supporting independent breweries through all facets of business,” including challenges in growth, distribution and marketing.
Berg – who held positions with Bacardi, Coors Brewing Company, G. Heileman Brewing Company and helped to launch the Effen Vodka brand in the early 2000s — declined to comment on how large his company’s fund was, saying only that a group of private investors, as well as friends and family, were backing the project.
Lambert, who joined Storied Craft Breweries in October, said the company has already engaged in conversations with other potential partners, and that it intends to make additional investments in the space.
“We’re constantly looking and there is a lot of stuff out there, but it has to make sense for us and the seller,” he said.
Editor’s Note: An earlier version of this story suggested that Farlie Turner & Co. played a less active role in the transaction between Storied Craft Breweries and Deep Ellum Brewing. It has been edited to more accurately reflect the relationship the investment banking firm had with both parties.