Petaluma's Lagunitas Brewing to partner with Heineken in 50-50 deal
In the most significant deal yet in the American craft brewing industry, Lagunitas Brewing Co. and Heineken International announced a partnership Tuesday to take the fast-growing Petaluma company's hoppy craft beers and irreverent business ethos across the world.
Heineken will acquire a 50 percent stake in the nation's sixth-largest craft beer producer for an undisclosed amount of cash and a structure that allows Lagunitas to utilize the Amsterdam company's global production and distribution network, Lagunitas founder and owner Tony Magee said.
Financial terms were not disclosed, but Lagunitas was likely valued at about $1 billion in the deal, according to people familiar with recent acquisitions in the craft beer industry.
Magee described the agreement with Heineken as a 50-50 partnership. Heineken will have three seats on the Lagunitas board and the Petaluma brewery will retain three seats. Magee, who began the company on his kitchen stove in 1993, will remain chairman. The deal is expected to close in the fourth quarter.
Magee said the partnership would not change the soul of the 730-employee company or diminish the quality of its beers. Instead, the partnership represents 'a profound victory for American craft,' Magee said.
Though still just 11 percent of the U.S. beer market, sales of craft beer jumped 17.6 percent in 2014 while the overall beer market grew a meager 0.5 percent. Lagunitas and Heineken believe a similar explosion is imminent in global beer markets, he said.
'For us, we don't need assistance here in the United States. But there is the whole world to think about,' said the 55-year-old Magee in an interview. 'We can partner with one of the world's greatest family-owned, really beer-centric companies to find our way into all of these markets globally.'
Heineken CEO Jean-François van Boxmeer said his company was excited to partner with Lagunitas 'so it can reach parts that other craft beer brands have not.'
Though best known for its flagship IPA, short for India Pale Ale, Lagunitas sells two dozen different beers with such cheeky names as Sucks, Hop Stoopid and Undercover Investigation Shut-Down ale, which was named after a 2005 marijuana bust at the local plant. It is on track to produce 825,000 barrels this year from its production facilities in Petaluma and Chicago, and announced plans in June to open a third plant near Los Angeles in early 2017.
The size of Tuesday's deal, along with its global ambitions, the media coverage it received and the reaction it generated on social media, far surpasses any of the recent mergers and acquisitions transforming the U.S. craft beer industry.
The partnership with Heineken was the result of a fast-evolving courtship throughout the summer as Magee attempted to find out where his rapidly growing company would fit into a quickly changing $20 billion craft-beer marketplace.
Some U.S. craft beer companies have opted for the takeover route. For example, Belgium's Duvel Moortgat has acquired New York's Ommegang and Kansas City's Boulevard Brewing. It struck a deal this year to invest in Firestone Walker Brewing Co. in Paso Robles. Others have taken alternative approaches to being bought out by larger breweries. Private equity groups have taken stakes in Unita Brewing in Utah and SweetWater Brewing in Atlanta, while New Belgium Brewing Co. in Fort Collins, Colo., selected an employee-stock ownership plan so it could remain independent.
But many in the craft beer community detest the growing corporatization of the industry, which was created by home brewers in late 1970s in response to the mild lager beers that have mostly dominated the American market over the last 50 years. They are particularly wary of attempts by the two big domestic beer manufacturers, Anheuser-Busch InBev and SABMiller, to make inroads.
That made the choice of picking a joint venture partner more difficult for Magee, known for his hands-on approach to writing Lagunitas copy and designing labels. Magee did not want to give up ownership of the company and was cognizant of the incredibly demanding culture of craft-beer consumers — something he found out first-hand in January when he sued Sierra Nevada Brewing Co. in Chico, alleging trademark infringement on a label. He quickly dropped the suit after a massive social media backlash, admitting on Twitter that he was 'seriously schooled & I heard you well.'
As he explored options with Wells Fargo Securities, Magee said he had 'multiple offers on the table.' Heineken had not been interested in participating in the U.S. craft beer market, but the Dutch company quickly became the front-runner after Magee hit it off with van Boxmeer during a visit to Lagunitas' Chicago plant.