Good Beer Hunting

Heineken and Lagunitas Take a Knee-High Equity Stake in Short’s

Lagunitas U.S. Holdings LLC announced this morning that it has acquired a minority stake in Short’s Brewing Company of Bellaire, Michigan, adding to its own stable of craft brands. But the line between the two companies isn’t exactly straight. In a joint statement, the two say Lagunitas U.S. Holdings, or LUSH (an umbrella company wholly owned by Lagunitas and established last year to partner with regional breweries), will manage the 19.9% equity stake. But the truth is that this is a sale to Heineken. Just two months ago, Lagunitas itself sold the remaining equity in its business to Heineken, having sold the first half to the Dutch brewing giant back in 2015.

The deal seems like a real win for Short’s and a long-play stake for Heineken in U.S. craft, but because of the customary confusion in the way Lagunitas continues to present these deals, apparently even to its own partners, we have a lot of unpacking to do first.

The task of grasping this type of subsidiary genealogy is a somewhat-intentionally complicated one, as evidenced by the Short’s team’s own understanding of it all. Reached by GBH, Joe Short, who founded the eponymous beer maker back in 2004, conceded even he isn’t exactly sure of “how it works with Heineken buying Lagunitas.” Kerry Cochran, a Short’s sales person who covers Indiana, Ohio, and Pennsylvania, added she, too, wasn’t entirely positive of how LUSH related to Heineken, describing the green-glassed goliath as a “third cousin” or “third uncle.”

The last time there was this much management of acquisition optics, we were told that Goose Island was acquiring Virtue Cider—Greg Hall being the connective tissue between the two companies as the former Goose brewmaster and founder of Virtue—while AB InBev’s name was consistently left out of the press releases.

But the reason for the optics management today is likely because only representatives of Lagunitas were part of the deal-making process from the Heineken side.

So here’s Scott Newman-Bale, a partner at Short’s, with the most helpful and clear distillation of the deal: “Although our arrangement is with Lagunitas U.S. Holdings, we’re not trying to hide the fact that Heineken is ultimately the one that owns the shares. But we’ve never actually talked to Heineken at all.”

So the deal-making is relying on the holdings company managed by Lagunitas, which itself sold 50%, then 100%, over the course of its short run at what was described as a “joint venture” with Heineken in its announcement. It seems strange that no one from the company who actually ends up holding the shares was involved in the conversation, especially as Lagunitas founder Tony Magee himself has touted how family-run and good for craft his own acquisition was.

The confusion surrounding the deal has only been compounded by various reports detailing it. Philly Beer Scene wrote that “LUSH is still an independent company and does not have ties to Heineken.” The Detroit Free Press, meanwhile, went ahead and reported, ultimately accurately, “Short’s Brewing Co. sells 20% stake to Heineken.” Speaking with GBH, Newman-Bale says the company wanted to partner with LUSH specifically because it was unwilling to forfeit any control.

“We took a lower offer and did a smaller percentage to ensure we aren’t subject to [losing] control," he says. "We can do whatever we want to do. There are no limitations or anything like that, which I think is the biggest point.”

In Magee’s own dealings with Heineken, the rationale was quite similar. Only later did he reveal that the deal between Lagunitas and Heineken gave the brewing giant the option to buy the rest. Perhaps using Lagunitas as the middleman on this deal creates further protections, or “independence” as the parties claim.

Short says things came together with LUSH as Newman-Gale ran into Magee during their respective travels.

“They were able to shoot the shit and get to know each other a little bit over there," he tells GBH. "As we continued to discuss our own company strategy, we agreed we shouldn’t take any strategic partnership off the table, but if we did do a partnership, who would be a good fit for our company, brand, and culture?”

Short continues: “So of course, Lagunitas pops up because LUSH was formed by then, and they were already making strategic partnerships with other brewers. So Scott called Tony to check in to see how its going, and Tony said, ‘Hey, I’m actually looking for a friend in your neighborhood.'”

As for the deal itself and figuring out what it means (after you get through organizing the Russian nesting dolls of brewery ownership, of course), the pair says the “partnership” will allow Short’s to maintain its “individual brand image while gaining additional resources for continued opportunity to invest in Short’s staff, the Northern Michigan community, & opportunities to push the boundaries of creativity.” Going forward, those opportunities are expected to manifest in a number of ways, Short says.
“We’ve got some expansion plans in the works and, you know, we’ve got a really great brewing ideas, and beer ideas, and product development ideas we’ve got up our sleeves that we’re excited to deploy,” he tells GBH. “It’s kind of, how much stuff can you squeeze into any hour of a given day to try to get done? This partnership just helps free up some of this time to focus on some of those things.”
To that end, the company hopes to dig deeper in its current distribution footprint, which includes Wisconsin, Indiana, Illinois, Ohio, and Pennsylvania in addition to Michigan. In the past year, Short’s entered these markets after a storied history of saying they’d stay Michigan only. As market factors changed, so did their distribution footprint and market ambitions. Furthermore, the company is in the planning stages of adding a 60-BBL brewhouse in Bellaire (a town Magee jokingly says he thought was in Canada in the press release) and is also exploring the feasibility of installing 600-BBL fermenters in its brewery in Elk Rapids.
“Both breweries are pretty tired and worn out right now,” adds Short. “The Bellaire pub has been around since day one, and we hope within the next couple of years we’ll be able to rehab that one and maybe double its capacity. And more importantly, we need to increase our production capacity at the Elk Rapids brewery.”
Cochran, on the sales front, is hopeful that as a result of the deal, the company can bolster its sales staff. She says that way she could focus on fewer accounts, rather than being spread across three states. “This will make my life better as an employee,” she says. “And give me opportunities to do my job better.”
There is one more interesting wrinkle, however, underpinning the muddy understanding of it all, as well as the reality of this deal meaning more resources: In the statement, Short went on to say that only now after selling a near 20% equity stake will the company be able to experience what “true independence feels like.” This phrasing is particularly remarkable in light of a partial sale to what is ultimately Heineken, given the fact that the conversation surrounding independence as it relates to craft acquisitions has crescendoed to a fever pitch in recent months.

It also should not go unmentioned, though, that because this deal is for less than 25% of the business, Short’s can continue claiming independence as defined by the Brewers Association, even if Lagunitas itself cannot—something Magee has tried to speak past in recent months, as he looks ahead and tries to “work with Heineken’s companies around the world to develop and deploy craft.”

—Dave Eisenberg