CHICAGO -- Tiny suburban Chicago brewery Kings & Convicts stunned the beer industry Tuesday afternoon by announcing the acquisition of California's legendary Ballast Point Brewing. Terms were not disclosed.
Ballast Point was famously bought for $1 billion four years ago by Constellation Brands, whose Chicago-based beer business owns the American rights to top Mexican brands that include Modelo, Corona and Pacifico. Ballast Point quickly became an albatross for Constellation, struggling to grow and adapt to its larger owners.
Multiple Ballast Point locations have closed and plans to open new ones have been put on hold in recent years. The deal nets six Ballast Point locations for Kings & Convicts Brewing Co. -- five in California and a taproom in Chicago's Fulton Market neighborhood.
Kings & Convicts co-founder and CEO Brendan Watters said the price was less than $1 billion, but declined to elaborate.
"I don't have that sort of cash lying around," he said.
Industry newsletter Beer Marketer's Insights reported that the deal was consummated for a "surprisingly low price."
Watters, a former hotel executive who sold his chain of Boomerang Hotels in 2015, said he recruited two new investors -- one of whom lives in California -- into Kings & Convicts ownership to pull off the deal, which is expected to close in 2020. The investor group is now six people, including Watters and his partner Christopher Bradley. Watters declined to identify the rest of the investors in the group.
"Most of them love Ballast Point, but don't want notoriety and want to remain quiet," he said.
The optics of the sale are as unlikely as they are unprecedented. Kings & Convicts, which opened a small brewery and 400-square-foot taproom in Highwood in 2017, is a tiny brand unknown to most Chicago beer drinkers. It will make a mere 660 barrels of beer this year.
Ballast Point is one of the nation's most recognizable brands, on pace to make about 200,000 barrels of beer this year. That's down from a peak of about 370,000 barrels of production in 2016.
Watters, who was in San Diego Tuesday to announce the deal to Ballast Point staff, said he told workers there not to worry about the fact they haven't heard of Kings & Convicts.
"I said most people in Chicago don't know us, either," he said. "I think that that's what makes it quite interesting."
Brewery sales have become common since Anheuser-Busch bought Chicago's Goose Island Beer Co. in 2011, a deal that sparked an era of consolidation as large beer companies sought to get a piece of the growing craft beer industry.
Tuesday's deal is a striking example of the opposite.
"This has been about the conglomerates buying up the independent breweries, but we're doing the opposite," Watters said. "We're saying, 'Let's bring it back to independence and innovation and see what happens.'"
Seeds of the deal were planted in July, when Watters golfed with someone he declined to name from Constellation Brands and asked about the company's plans for its foundering craft brand.
"I said, 'What are you doing with Ballast Point?'" Watters said. "They said, 'Why?' I said I wanted to buy it. It was as simple as that."
In a statement, Bill Newlands, Constellation Brands president and chief executive officer, cited trends in the U.S. craft beer market that have "shifted dramatically since our acquisition of Ballast Point" as a reason for the sale.
"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," Newlands said in the statement. "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."
Watters said Ballast Point was never formally shopped by Constellation so far as he knows, and that he and his partners had long admired the beer and the brand, even as it struggled in recent years. He was already familiar with the brewery's inner workings from consulting with Ballast Point during the past two years while trying to get an ambitious new brewery launched in southern Wisconsin for Kings & Convicts. The project recently broke ground, Watters said.
Ballast Point is distributed in 49 states. Watters said the brand will honor existing distribution contracts, but will focus efforts on core markets, including California, Illinois, Washington state and its international business. All existing Ballast Point facilities will remain open, he said, and sales, marketing and human resources staff -- all gutted under Constellation -- will be rebuilt, he said.
Despite its recent struggles, Watters said he believes the brand has plenty of upsides. He wants to see Ballast Point "act like a small brewer again and see where it goes."
"It's really about focus," he said. "We will build up a new Ballast Point sales force and let the innovation go and get back to the roots. I think it just needs some love and focus and it'll be fine."
Watters said Ballast Point beer would eventually be made at Kings & Convicts' brewery in Wisconsin and Kings & Convicts' beer would be brewed at Ballast Point's San Diego location for export to his native Australia.
News of the sale sent baffled beer fans scrambling to the Kings & Convicts website Tuesday. The site quickly crashed.
(c)2019 Chicago Tribune
Visit the Chicago Tribune at www.chicagotribune.com
Distributed by Tribune Content Agency, LLC.