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Sunday, 07 August 2016 13:18

An industry at a crossroads: Closely-held craft brewers — noted for fierce independence — weigh options for succession

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New Holland Brewing Co. President and co-founder Brett Vanderkamp said he’s started to think about succession planning at the 20-year-old, closely-held craft brewery and distillery. While acknowledging that the independent beverage producer is keeping its options open, Vanderkamp said New Holland has started “laying the groundwork” for the next stage of its history, which could lead to a sale, a transition to a new generation or employee ownership. New Holland Brewing Co. President and co-founder Brett Vanderkamp said he’s started to think about succession planning at the 20-year-old, closely-held craft brewery and distillery. While acknowledging that the independent beverage producer is keeping its options open, Vanderkamp said New Holland has started “laying the groundwork” for the next stage of its history, which could lead to a sale, a transition to a new generation or employee ownership. Photo by Jeff Hage

As New Holland Brewing Co. LLC ramps up a major expansion into the Grand Rapids market that’s expected to open next month, President and co-founder Brett Vanderkamp has plenty to keep his mind occupied. 

There are construction schedules, inspections and hiring 150 people to staff The Knickerbocker, a new brewery, distillery and restaurant that New Holland is building as part of a Rockford Construction development in Grand Rapids’ West Side neighborhood. He’s also charged with running a growing craft brewery — Michigan’s fifth largest — which has a capacity “north of 40,000 barrels” and is now distributed in 31 states. 

But Vanderkamp, who launched New Holland with Jason Spaulding in 1997 in the city of Holland, has also started to think about what comes next for the closely-held business. When it comes to the future, Vanderkamp is keeping his options open. 

“You need to be thinking in terms of legacy,” Vanderkamp said. “But whether that would be an ESOP, whether it would be a sale, or whether it would be a transition to the next generation — all things that are on the table — at this point, we haven’t settled on a direction yet.”

While acknowledging that he doesn’t “want to get too far ahead here,” Vanderkamp said New Holland needs to begin now to prepare for a smooth transition, regardless of the path the company ultimately takes. 

“It’s a lot of laying the groundwork,” he said. “We’re into our 20th year here, and starting to think about the legacy that we’re going to leave really gets me excited. How do we best position ourselves to be able to have an impact on the people who have helped bring us here along the way, and this next generation? That’s what I start to think about.” 

As the $22.3 billion craft beer industry matures, many of the early players have started to plan the next steps for their companies. For Galesburg-based Bell’s Brewery Inc., that’s led founder Larry Bell to take well-publicized steps to buy out minority shareholders and position the company for long-term family ownership. Others like Founders Brewing Co. in Grand Rapids have looked to partner with larger multinational breweries that can offer resources and expertise, particularly as it relates to tapping into growing international markets. 

But like in most other industries, the founders of craft beverage companies didn’t necessarily start out with succession or some sort of exit in mind. That was the case with New Holland, where the advice the founders received early on was focused on the short term. 

“We didn’t think it through well enough, even on the perspective of shareholder transitions,” Vanderkamp said. “We had a steep learning curve in regards to ownership structure in general.”

According to Joseph Infante, the head of the alcoholic beverage regulation team at Miller, Canfield, Paddock and Stone PLC in Grand Rapids, it’s never too early for a craft beverage company to begin planning for succession. 

He noted succession planning was a “huge issue” at the recent Craft Brewers Conference, an annual trade show held this year in Philadelphia.

“You need to look 15, 20, or 25 years ahead and think where is my business going to go, who will take it over — will it be my kids?” Infante said. “Or is selling your plan? If you don’t want to leave it to your children, what about your employees? … A lot of them are doing ESOPs. Or do you want to sell to private equity or (a strategic buyer)?”

The most common mistake craft beverage executives make is to put off planning because “accidents happen, life happens, and you need to think about succession,” he said. 

OPTING TO SELL 

The strategic buyer option is a familiar one for Greg Hall. His family sold Chicago-based Goose Island Beer Co. to Anheuser Busch LLC in 2011 for a reported $38 million, kicking off a craft brewer buying spree for the multinational corporation. Then again last year, Hall’s Fennville-based Virtue Cider Co. struck a deal to sell a majority stake to Goose Island, which was founded by his father and where he once served as brewmaster. 

Since the deal for Goose Island, Anheuser Busch has gone on to purchase seven other craft breweries across the country, a move that many brewers worry will limit access for their smaller companies. 

“There was kind of this dark, Trump-ian thought that … this is going to ruin beer, they’re going to take away access to market,” Hall said. “There’s the doom and gloom story, and then there’s the, ‘Hey, this is great for the breweries (story).’ It gives the breweries more access, but it also gives the customers more access to the beer. … On the other side of it, the employees get so much more opportunity because the business grows.”

In particular, the deals in the craft beer industry have happened quickly in recent years, coming off a period of rapid growth in which breweries had to invest in significant capacity to keep pace with demand. But industry experts say that as the base of craft beer drinkers widens, the growth rate will normalize. 

While craft beer production expanded 16 percent last year, the pace of growth slowed to 8 percent for the first six months of 2016, according to the Brewers Association, a Boulder, Colo.-based trade group. 

In the case of Virtue, it looked to Goose Island to remove the barriers to growth it was experiencing as a young company that needed more resources, according to Hall. 

“Whether your resources come from a bank or investors or (private equity) or a big brewery, everyone needs resources,” Hall said. “Very few people just write a check for their brewery and are able to run it sustainably without money coming in from somebody else.” 

As such, independent craft beverage companies will need to make some decisions about their future to be sustainable. Given the rapid change in the industry, Hall said it will take scale and considerable resources for craft brewers to continue playing on a national basis and with chain retailers. However, family-owned or closely-held craft brewers have a distinct advantage when it comes to on-premise sales because the owners are the face of the company and can interact one-on-one with the buyers.  

“You’ve got to be the face of the brand in the marketplace, because that is the advantage you can have over the bigger brands who have more money to spend and more scale and more access to ingredients and better relationships with their wholesaler and all that,” Hall said. 

CONCERNS OVER LEGACY

While a multi-million dollar payout from a strategic buyer is certainly attractive for craft brewers, the industry’s independent streak can make owners uneasy with selling out to Big Beer. 

Vanderkamp believes “it’s only natural that we’ll migrate that way” as the industry continues to consolidate in the years ahead, but he remains unsure if a deal with a strategic buyer would be the right choice for his company. 

“We’re open to all and any conversations, but I think we would take a much more cautious approach to something like that,” he said. “The dollars are just significant enough to force those questions.

“If you’re going to look at any type of a transaction that would involve a large percentage of the equity, you need to be thinking in terms of the legacy. In my mind, it’s front and center: What am I going to leave behind? What about the employees that are currently there?”

That issue of legacy played heavily into Founders Brewing’s decision to sell a 30-percent stake in the company to Mahou-San Miguel Group, a 125-year-old, family-owned Spanish brewer. 

“With legacy, we were driven by this concern to protect our brand,” Founders CEO Mike Stevens told MiBiz in a previous interview. “We do want our brand to outlive us. We would love to see our kids work at the brewery some day and create this multigenerational brewery.”

While Founders had conversations with “the largest of breweries all the way down,” Stevens found many of them — and the private equity funds he talked to — came up short on the legacy concern, which is where Mahou-San Miguel stood out. 

“Some of their very early questions were not about volume, not about profitability. I can remember them asking about my kids — will the kids work at the brewery,” Stevens said at the time. “Their leading questions were more about the longevity and the protection of Founders as a brand than about anything on (the financial or production side).”

INTENTIONAL GROWTH 

Hall of Virtue Cider said making a deal with a partner like Anheuser Busch can help brewery owners grow their companies to new heights and get their products into the hands of more consumers. 

“The reason to do it is because you have big dreams, you have dreams that you have just never been able to afford to do and didn’t have the resources to do them,” he said. “It depends on what you want to do. … If you’re not really ambitious and you don’t want to grow your company like crazy, then it’s the wrong move.”

At New Holland, Vanderkamp said he’s been tracking the active dealmaking in the industry with a certain level of skepticism, particularly given the multiples some of the companies have received. 

For example, international alcoholic beverage producer and marketer Constellation Brands Inc. (NYSE: STZ) of Victor, N.Y. paid $1 billion last year to acquire San Diego-based Ballast Point Brewing & Spirits Co. At the time of the sale, Ballast Point was about the same size as Founders, but it had other new capacity in the works. 

“I kind of think to myself, if that’s the play for some folks, good for them,” Vanderkamp said. “Maybe it’s my Dutchness, but I have a cautiousness.”

In the meantime, he’s focused on executing New Holland’s newly revised 2020 vision, which was updated last month as the company remains very intentional in its expansion in Grand Rapids, where it’s been looking for opportunities for about a decade. Company culture is something New Holland takes very seriously, he said. 

“We need to have … an understanding about where we’ve come from, what are our values and what we hold dear, and how we prioritize our work,” Vanderkamp said. “We’re constantly working on that, modifying it, and try for it not to be just some plaque on the wall, but a living and breathing document.” 

Read 5582 times Last modified on Friday, 12 August 2016 15:05

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