Two of the country's biggest breweries are joining forces. Boston Beer Company—makers of Samuel Adams—and Dogfish Head Brewery announced this week they "signed a definitive merger agreement" that will bring the companies together for "approximately" $300 million.
According to a press release announcing the move, the combo is meant to create "a balanced portfolio of leading beer and 'beyond beer' brands at high-end price points, and industry leadership in innovation and quality." But far more is coming together than just two large companies (led, respectively, by brewing icons Jim Koch and Sam Calagione).
Dogfish Head has long stood on the precipice of Big Time Brand status, and is well-known and represented up and down the East Coast. It distributes to 43 states and Washington, D.C., but careful growth has kept it from existing as a fully fledged national brand. A 2015 influx of cash from private equity company LNK Partners helped Dogfish invest $145 million into projects that ranged from new equipment to hospitality and marketing to quadrupling its sales force, pushing the brewery from around 237,000 barrels in 2015 to a goal of about 300,000 BBLs this year.
These are large numbers in the world of beer, but a relatively modest pace of growth for the world of private equity. At face value, $145 million for 63,000 BBLs doesn’t look great (especially when the transactional value of those BBLs was $63M). But taken within the context of all the company has done, including building its Dogfish Inn, spending $5 million to renovate its brewpub space, and upping its employee ranks to around 400, more value was added than just production levels. It’s unclear, however, if that value translates into a return on the original investment for private equity investors. Still, it would seem that that large sum did more to increase the overall value of the Dogfish brand than ramp up production at excessive rates.
It was barely six months ago that the Brewers Association updated its definition of "craft brewer" to seemingly keep Boston Beer in its fold, and the reverberations of that decision, plus ongoing troubles for the company, are part of this move, too. Recent years have shown these two companies on diverging paths, with Boston Beer struggling to find staying power for beer brands like Rebel IPA or Sam ’76. Instead, the company has leaned hard on its non-beer portfolio of Angry Orchard cider, Twisted Tea flavored malt beverages, and Truly Hard Seltzer. Dogfish, however, has been on fire.
Through the first quarter of 2019, Boston Beer's sales measured by market research company IRI’s grocery, convenience, and other stores almost entirely came from non-beer brands. Meanwhile, Dogfish Head beers have grown by an average of almost 13% year-to-year from 2015–2018 in IRI stores. That growth has been led by the wildly successful launch of SeaQuench Ale and a company that’s openly embracing the excitement around an increasingly "better-for-you" portfolio of brands.
Dogfish founders Sam and Mariah Calagione will now act as the largest non-institutional shareholders of Boston Beer stock after Jim Koch, with their shares worth about $127 million. Dogfish will also receive about $173 million, wiping clean that 2015 private equity investment by LNK Partners, which the Calagiones had always said would be bought out.
“In this moment, you either keep your strength by focusing on hyper-local, or you gotta invest a shit ton of money and resources into breaking through the noise of those top-50 brands to go up the ladder of your distributors,” Sam Calagione said on the Brewbound podcast in October 2018. “There is very little opportunity between.”
It was in that conversation that Calagione hinted at a lot of what makes so much sense about this team-up, which started coming together in February of this year, according to Brewbound.
“If you’re a top-80 brewery, you better get ready to build a great sales force, add a lot of people, add a lot of strong marketing plans, or you’re going to go down your distributor’s totem pole and be forced to either go back and retrench and be local and small, or go out of business,” Calagione said on the 2018 Brewbound podcast.
By becoming a partner with Sam Adams, Dogfish Head finally has access to an area that has long eluded it: wild distribution growth. Despite its floundering off-premise numbers, there’s no denying Sam Adams’ wide-ranging footprint. Make a stop at any airport bar and you’d be hard-pressed to find a tap list that doesn’t include the iconic revolutionary hero logo. Dogfish, which Calagione says sells 99% of its beer through distributors, just got access to a market unlike anything it’s had before.
It seems hard to believe it was just eight years ago that Dogfish Head had to pull distribution from Tennessee, Indiana, Wisconsin, and Rhode Island because demand was outstripping supply. Dogfish returned to those states in 2013 and has been on an unstoppable march since. Lately, it can seemingly do no wrong.
Having additional paths to market is great for Dogfish, and there’s an ideal product synergy for Boston Beer, too. Flagship Boston Lager may be a mainstay at major accounts, but Sam Adams has long missed the opportunity to succeed within one of the most important movements in American beer: the IPA. Despite having one of the biggest debuts in the history of beer, Sam Adams’ Rebel IPA has effectively been abandoned, and the beer lost 60% of IRI sales volume from 2015–2018. Dogfish, meanwhile, has purposefully capped production levels of its 60 Minute IPA.
In an interview with the Boston Business Journal, Koch said Boston Beer will be able to bring Dogfish Head into places it hasn't existed before. On the flip side, Dogfish's innovative streak will help further push Boston Beer's brands, including on the hospitality side. Boston Beer has finally begun to take advantage of an own-premise taproom model, and added Sam Adams taprooms in Boston and Cincinnati within the last year.
"I think there’s a lot of soft synergies between two management teams that like and enjoy each other’s company and are both very dynamic and creative," Koch told the outlet.
What makes this deal feel different from something like Brooklyn Brewery-21st Amendment, or Artisanal Brewing Ventures’ conglomeration of Victory, Southern Tier, and Sixpoint, is that both companies are getting something they clearly need. Dogfish gets money and access to market, while Boston Beer now has a partner that excels at creating new and innovative products. Both will also benefit from having larger-than-life American craft beer icons (both in terms of their founders and brands) at the helm.
It’d be foolish to see Boston Beer’s pivot toward health-focused, “better-for-you” brands and not acknowledge Dogfish Head’s domination of that space. “Right now, our goal is to be recognized as the number-one active, lifestyle-oriented craft beer brand,” Calagione told GBH in February, three weeks after he reportedly struck up conversations with Jim Koch about joining forces.
But there’s also a matter of brain trust involved in this kind of transaction.
Look closely at the executive rosters of these two companies, and you'll find a unique collection of personnel moves. In March, Boston Beer hired its second chief marketing officer, Lesya Lysyj, who had served as U.S. president of Welch Foods Inc. She replaced Jonathan Potter, who was the first-ever CMO for Boston Beer, and who held the position for two years, from mid-2016 to mid-2018. In April, just prior to this acquisition, Dogfish Head vice president of marketing, Neal Stewart, left the company after five years, moving into the same position at Deschutes Brewery.
On first glance, this means Lysyj could serve as head of marketing for both companies. There’s been no formal announcement on this front, aside from the fact that the combined company will now be led by Boston Beer CEO Dave Burwick. For his part, Burwick served as president and CEO of Peet's Coffee during purchases of competitors Intelligentsia and Stumptown in 2015.
This deal echoes those previous coffee buyouts. At the time, Stumptown was "running out of space" and Intelligentsia was suffering from "restrictions on resources." According to leadership involved, combining the three companies was beneficial to all as a way to extend reach and feel more secure in finances. Leadership from Burwick and Lysyj will presumably be key as Boston Beer and Dogfish determine next steps to grow together.
While it has experienced brief successes with brands like Angry Orchard Rosé Cider and Sam ’76, Boston Beer has had few hits in the past year or so beyond Truly Hard Seltzer. (Twisted Tea, on a tear for years, is its own kind of monster.) Dogfish has organically grown its current brands in recent years while also hitting on phenomenons like SeaQuench Ale. On his LinkedIn page, Stewart writes that he led “the marketing planning and launch of the two largest brand introductions (SeaQuench Ale and Flesh & Blood IPA) in the 23-year history of the brewery,” along with a variety of other accomplishments that would make craft brewers blush in an age of 4% category growth.
It’s worth considering the impact of Stewart’s departure, given his status as a pivotal player behind one of the more successful craft breweries in the country. This merger could now mean a former Welch’s leader oversees that same innovative and proudly “indie craft” brewery.
Two months ago, Boston Beer’s announcement said that Lysyj would lead the “planning, development, and execution” of “development, marketing, and advertising initiatives.”
But let’s be clear. This isn’t simply a business transaction. It also offers succession plans for both companies. In 2015, Jim Koch put it plainly for the U.S. Senate: "I can honestly predict that I will likely be the last American owner of Boston Beer Company.”
That’s not really the case anymore.
As Boston Beer’s executive group has evolved in recent years, it’s become clear Koch’s previous positions on business and beer have needed to change. It was just two years ago that an op-ed he authored in the New York Times provided a list of opinions that countered previous stances or advantages. In the piece, he called out AB InBev and MillerCoors as a source of problems for his company, while leaving out the fact that he had previously described "new craft brewers" as a challenge. He decried Big Beer’s distribution advantages, though Boston Beer had "more clout than most when it brings a new product to market." The list went on. This followed up on a 2015 profile that highlighted the company’s difficulty in following the shifting sands of craft beer.
“I don’t want to make something if everyone else is doing it,” Koch told Boston Magazine. In the piece, writer Andy Crouch noted that Koch “personally doesn’t enjoy many of the flavors in IPAs that today’s consumers celebrate, dismissing them as ‘catty’ in nature.”
“I am probably outside the mainstream on that,” Koch concluded. “We don’t release a beer unless I like it.”
In Sam Calagione (49 years old), Koch (69 years old) now has a successful entrepreneur to take the reins of his company.
Across beer’s many recent acquisitions by players the likes of Anheuser-Busch InBev, MillerCoors, and Heineken, a consistent refrain about the importance of continuity in leadership and talent has persisted. Keeping those leaders is often played up as key to success, unless you’re Constellation Brands, which really dropped the ball with Ballast Point. In this situation, as with other aspects of the deal, everything just feels right.
Koch is an American beer icon, having appeared in TV commercials and written books. Within the industry, he’s celebrated as one of the “Founding Fathers” of the country’s craft beer movement. Calagione brings as much energy and enthusiasm to the field, and, for his part, has also authored books and appeared on TV shows. Then there’s Mariah Calagione, co-founder and executive vice president for Dogfish. She’s recognized as a "driving force" behind Dogfish's success, and has led the charge to create the Dogfish Head Inn—a hotel not far from the company's production brewery and original brewpub space—and oversee the brewery’s digital footprint.
If there were ever an ideal pairing of companies, or a more fitting way to pass the torch from one iconic American brewery to another, this could be it.
This deal doesn't just reflect what's happening right now. It also speaks to evolving conversations about "independence" and "craft" within the industry—topics which both Koch and Calagione have spoken about at length.
On the Brewbound podcast, Calagione said that future success within the beer world will come from “awesome, little craft breweries—tasting room-oriented breweries that navigate this competitive moment and there will be great national brands like Dogfish and Sierra and Stone and Sam Adams that navigate this moment.”
“I’d say, at this moment,” he later added, “if you’re big, you better be ready to go big during this competitive moment.”