GRAND RAPIDS — Founders Brewing Co. is selling a majority stake in the business to the brewery’s Spain-based minority shareholder, MiBiz has learned.
Grand Rapids-based Founders Brewing, the 14th largest brewery in the U.S. as of 2018, filed documents with the Michigan Liquor Control Commission last week indicating that Spain’s Best Beer Inc., an affiliate of Madrid-based Mahou-San Miguel Group, will hold a 90-percent stake in the company. The Spanish brewer currently owns a 30 percent stake in Founders.
Founders Brewing co-founders Mike Stevens and Dave Engbers each will retain a 5-percent stake in the brewery, according to state filings.
Stevens confirmed the pending deal in an exclusive interview with MiBiz.
The investment from Mahou allows Founders to buy out the more than two-dozen minority shareholders it accumulated over the years, including family members of various executives, local business people and other investors, according to filings with the MLCC.
Those investors “gave us a commitment when they probably shouldn’t have given us a commitment,” Stevens told MiBiz. “To see the kind of return on the dollar that they’re able to enjoy, it really is very satisfying and rewarding, coming from a place of just a couple homebrewers — and quite frankly, I was the opposite of wealth. It is the American Dream.”
As well, the Mahou investment allows Stevens and Engbers to “take some chips off the table,” although “a significant amount of our wealth is remaining in the company,” Stevens said.
The company expects day-to-day operations to remain unchanged after the deal, and the Founders leadership team will remain intact.
According to Stevens, Mahou’s larger ownership stake in the company will help Founders Brewing think more strategically in the future, especially from a brand-building perspective. While Founders has been successful at growing brands such as All Day IPA and Solid Gold, according to Stevens, he thinks the company still has plenty of running room to gain share with those products and explore other areas of the market.
“I don’t think anyone in the beer industry would argue that the craft industry has been the best when it comes to innovation and product. But I would argue that we have not been great at building brands,” Stevens said, referencing companies like Coca-Cola, Google and Apple.
Mahou brings to the table the resources Founders needs to “focus, focus, focus” on strengthening its brands.
“It’s going to give us the opportunity to take Founders to a whole other level,” Stevens said. “And frankly, we have to. We’re a growing company. We have 650 employees. We owe it to our employees to do the best we can to protect them with jobs into the future. This is a great opportunity for us to do that.”
Founders and Mahou expect the transaction to close in January 2020, pending state and federal regulatory approvals.
The latest deal comes as Founders Brewing approaches the five-year anniversary of its initial deal with Mahou-San Miguel in 2014 that gave the Spain-based brewing conglomerate a minority state in the company.
According to documents MiBiz received via a Freedom of Information Act request, the 2014 Founders-Mahou acquisition agreement for the 30-percent stake, valued at around $96.3 million, included a provision allowing Mahou to acquire the remainder of the company starting in the fifth year after the initial deal.
In the initial acquisition agreement, Mahou agreed to a purchase price between 10 and 13 times EBITDA (earnings before interest, tax, depreciation and amortization), depending on Founders’ average financial performance in the five-year period.
Founders Brewing Chief Corporate Counsel Tony Barnes told MiBiz the “old deal went away.” He described the current deal as a different and separate agreement that allowed the company to take out the minority shareholders, leaving Stevens, Engbers and Mahou as the sole ownership group.
The minority owners unanimously signed off on the Mahou acquisition, he said.
“It’s bittersweet for a lot of people who rode the rails through the tough times, but they all agreed this was the absolute best thing to do for Founders,” Barnes said.
Stevens added: “A lot of people look at us and think we own the whole brewery, but the reality is we’ve never had a majority ownership of this brewery.”
Since the initial deal, Founders Brewing has continued to grow, expanding its distribution footprint to include the entire U.S., as well as opening a second brewery taproom in Detroit and adding a production-only brewery on Hynes Avenue along U.S. 131 south of downtown Grand Rapids.
As well, Founders Brewing expanded to encompass an entire city block at its brewery and taproom facility at 235 Grandville Ave., where it has a maximum production capacity of 900,000 barrels of beer.
The company brewed about 600,000 barrels of beer in 2018, Stevens said. That compares to 200,000 barrels in 2014 at the time of the initial deal with Mahou.
In data the company supplied to MiBiz earlier this year, Founders Brewing said it shipped 115,178 barrels of beer just in Michigan in 2018, up 20 percent from the prior year.
The sale to Mahou also follows a joint acquisition in April 2019 in which Mahou and Founders Brewing acquired a majority stake in Boulder, Colo.-based Avery Brewing Co. Last year, Founders announced that it would contract with Avery to produce the All Day IPA brand for distribution on the West Coast.
In an executive roundtable hosted by MiBiz in April, Stevens said producing the brand at Avery’s location “saves us $5 a case just with transportation.”
Looking forward, Stevens said the deal with Mahou will position Founders as a “legacy brewery” that’s better able to weather the craft beer industry headwinds, as the pace of growth slows and still more and more companies come to market.
Stevens also acknowledged the deal also will help Founders “look more holistically to reinvent what beer looks like” as younger generations come of age with a high degree of familiarity with craft beer brands.
“We really have to start looking beyond craft and beyond that industry. We are starting to see a slow down there, but there is so much opportunity out there when you really start to look at it and evaluate the beer industry. Eighty percent of the beer drinking public does not drink craft. What does that mean? It means there’s a sea of opportunity. That opportunity is going to take a lot of resources — resources greater than any craft brewery in our industry has. We look at this opportunity with Mahou as our opportunity together to break into a much larger segment of the beer industry. That’s what we’re looking forward to with this partnership.”
Stevens believes the deal is a “great win for the state and the brewing industry” because it means Founders will have the resources it needs to be around for the long term. While that could mean expanding to other areas of the country, the company recognizes its roots and its home in West Michigan.
“Dave and I started this thing here and we didn’t come from money. We had a lot of shareholders that we had to grab,” he said. “It’s been a huge combined effort of a lot of shareholders from around the greater Grand Rapids area and we’re very thankful for that.”
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