Update, Jan. 14: Brewbound reports Fireman Capital private equity is not CANarchy’s seller: In a move unannounced in media, HPS Investment Partners reportedly took control of CANarchy’s board from Fireman around July 2020. The following year, equity restructuring gave HPS further ownership. Neither HPS nor CANarchy would elaborate on ownership details to Brewbound. The original story follows.
THE GIST
Monster Beverage Corporation, maker of Monster Energy drinks, will purchase CANarchy Craft Brewery Collective LLC, a craft beer and hard seltzer company, for $330 million in cash. The deal gives Monster a foothold in the alcohol market through a nationwide network of breweries and distribution connections—a goal the energy drink company has long telegraphed. That desire recently fueled speculation Monster was considering a merger with beer, wine, and spirits company Constellation Brands.
Founded in 2015, CANarchy is owned by Fireman Capital Partners, a Massachusetts-based private equity firm. The collective includes Oskar Blues Brewery, Wasatch Brewery, Cigar City Brewing, Perrin Brewing Co., Squatters Craft Beers, Deep Ellum Brewing Co., and all their accompanying hard seltzer spinoffs, which most noticeably include Wild Basin Hard Seltzer, the #19 brand family in chain retail. (From 2018 to 2021, it also included Three Weavers Brewing, which founder Lynn Weaver bought back from CANarchy last year.)
As the clock ticks for Fireman Capital’s return on investment in CANarchy, this may have been the best moment to cash out.
From 2016-2020, the collective averaged +18.7% year-to-year growth, including +20.5% and +30.1% in 2019 and 2020, respectively.
In-store sales fell in 2021 because of last year’s record highs, induced by the COVID pandemic that closed bars and restaurants and forced sales momentum to grocery, convenience, and other stores.
CANarchy’s sales slumped -11.4% in 2021 (craft beer was -5.4%), but still managed its second-best year ever as a collective.
With the sale, Monster gets a route into alcohol production, sales, and distribution, and Fireman Capital gets a return on an investment that faces increasingly difficult competition.
WHY IT MATTERS
Monster’s acquisition of CANarchy knits together two realities in the current beverage alcohol landscape. Beverage companies are spending money to diversify their portfolios across alcohol categories and non-alcoholic offerings, and the investors in large craft breweries are becoming impatient as those beer brands face an increasingly challenging sales market.
A typical timeframe for private equity firms to seek a return falls between three-to-seven years, and Fireman was already on the far end of that timeline. Fittingly, CANarchy’s sale comes the same week as Molson Coors discontinued Saint Archer Brewing Company, selling its physical breweries to Kings & Convicts Brewing Company, and Uinta announced a sale to new joint owners. Interested buyers have found eager sellers.
The CANarchy transaction also signals to some analysts that Monster may be souring on a rumored merger with Constellation in favor of taking alcohol production in-house. Nik Modi, analyst for investment bank RBC Capital Markets told Reuters the CANarchy acquisition provides Monster with critical access to nationwide alcohol distribution.
Monster’s co-CEO Hilton Schlosberg echoed that in a press release, stating: “The acquisition will provide us with a fully in-place infrastructure, including people, distribution and licenses, along with alcoholic beverage development expertise and manufacturing capabilities in this industry.”
What Monster likely sees as most lucrative about CANarchy is not its beer or brands, but its logistics and regionally rooted distribution networks. Speaking to VinePair in 2018, CANarchy president Matt Fraser said the brewery collective model allows CANarchy to be “infinitely local and nationally accessible.” There are few other companies of this model that Monster could have acquired with this type of national muscle and regional-local presence.
Yet the distribution overlap between Monster and CANarchy isn’t likely to be seamless: As Diageo’s Pacific sales director Jonathan Urch noted on Twitter in light of the news, some beer wholesalers sell Monster, but more sell Monster’s primary competitor, Red Bull. Molson Coors Beverage Company is also betting big on Zoa, its energy drink brand, further complicating energy drink priorities among beer distributors.
In spite of potential speed bumps relating to energy drinks on beer trucks, CANarchy might have simply been too good a deal for Monster to pass up. The "per barrel" cost of breweries have been all over the map in recent years:
In 2015, Ballast Point sold to Constellation for $1 billion, almost $3,5000 per barrel.
In 2019, AB InBev purchased Craft Brew Alliance at a cost of about $424 per barrel and Boston Beer brought Dogfish Head into the fold for around $1,100 per barrel.
For CANarchy's roughly 500,000 barrels, Monster is paying $660 per barrel.
The range of these purchases indicate that in some cases, brand affinity and a company’s assets in terms of infrastructure and logistical support can matter. In that VinePair story, Fraser notes the strength CANarchy carried with “raw material purchasing, can pricing” and a company that had built consolidated staff for “IT, HR, accounting, banking, excise tax reporting.” With CANarchy, Monster is effectively buying a turnkey operation for a great price at the same time it’s finally making moves into a new space: beverage alcohol. The stars have aligned and financial markets have taken notice, pushing Monster’s stock price to record highs.
In selling the company, CANarchy leadership is acknowledging strong headwinds facing national and regional craft brands, and a more modest outlook for the trajectory of these brands in the years to come.
Last year, CANarchy brands collectively sold $141.3 million in IRI-tracked chain retail, a decrease of -11.4% from 2020 (worse than the craft category) but an increase of +16% over 2019 (better than the craft category). Deep Ellum (+1%) was the only CANarchy family to avoid sales losses in stores in 2021.
Two CANarchy brands struggled more significantly than others in 2021: Oskar Blues (-20.4%) and Perrin (-28.9%). The Oskar Blues declines are especially troublesome for the collective, given that it’s the second largest brand within CANarchy by sales dollars, earning half as much as the largest brewery in the portfolio, Cigar City Brewing. Cigar City was down -2.1% in chain sales last year.
Surely though, Monster sees raw materials to be mined, polished, or reformulated within CANarchy’s beverage portfolio. As with Anheusser-Busch InBev’s purchase of Craft Brew Alliance in 2019, Monster acquires nationally relevant brands as well as more regional and local plays. For example, Cigar City has a quietly large hit on its hands with Florida Man Double IPA, which is up +66% in IRI-tracked sales in 2021 and will see a second, hazy version launch next month. (CANarchy’s portfolio also includes hard seltzers, both through the Wild Basin line and through individual breweries’ hard seltzers, though the collective’s flavored malt beverages as a whole were down –25.2% in 2021.)
According to Beverage Digest, on a Jan. 13 Monster investor call, the company expressed a focus on hard seltzers—both Wild Basin and the prospect of developing its own “natural hard seltzer product.”
How Monster manages CANarchy will be an early case study in the recent crescendo of beer and non-alcoholic beverage company partnerships and acquisitions. This particular deal could only become more apropos to 2022 if Monster next picked up a cannabis adjacency.
Words by Kate Bernot