In Milestone Deal, Heineken Buys Stake in Hot Craft Brewer

Lagunitas Is Fifth Largest Craft Brewer in U.S.

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Lagunitas Credit: Lagunitas

Heineken is jumping head first into the craft beer business by taking a 50% stake in the Lagunitas Brewing Co. in deal that one industry expert called "a new milestone in the globalization of craft beer."

Lagunitas -- which has breweries in California and Chicago -- is the fifth-largest craft brewer in the U.S. by volume. Brands include A Little Sumpin' Sumpin' and Lagunitas IPA, which is the largest India Pale Ale in the U.S., according to Heineken, which operates globally.

"The transaction will provide Heineken with the opportunity to build a strong foothold in the dynamic craft brewing category on a global scale, whilst it provides Lagunitas with a global opportunity to present its beers to new consumers in a category that is showing exciting international growth opportunities," Heineken said in a statement.

Heineken did not release terms of the deal but stated that Lagunitas will continue to be led by its founder, Tony Magee, and will "continue to operate as an independent entity."

Beer Marketer's Insights reported that the 50/50 joint venture has an "implied valuation in the neighborhood of $1 billion for the total enterprise," calling it "eye-popping, reportedly well over 20x EBITDA."

The publication also called Lagunitas the "hottest craft brewer of the last five years," and referred to the deal as "easily the biggest and most far-reaching craft deal yet" that "represents a new milestone in the globalization of craft beer."

Beer Business Daily noted that Heineken does not have a brand like Lagunitas, "and they needed a punch." Dos Equis growth is slowing and while brand Heineken has "picked up a bit" it is "not on fire," the publication stated.

While big brands still dominate in the U.S., craft beers have steadily gained share. In its statement, Heineken noted that "craft beer continues to outperform the overall beer market, and now represents 11% of total volumes," adding that "IPA is the fastest growing category."

The Heineken-Lagunitas deal follows several recent craft acquisitions by beer giant Anheuser-Busch InBev. The brewer bought Goose Island in 2011, followed by East Coast-based Blue Point Brewing Co. in early 2014. More recently, A-B InBev bought 10 Barrel Brewing Company in Bend, Ore. and Seattle-based Elysian Brewing Co.

In an interview with Mr. Magee, Beer Marketer's Insights noted that he once said he would "rather put my eyes out" than sell to A-B InBev. The publication asked him what is different about Heineken. His response was that the "difference is primal: ABI is owned by bankers. Heineken is controlled by the great-granddaughter of the founder. The former is in the cash-flow management business and the latter is in the beer-flow management business."

Mr. Magee further elaborated on his decision in a lengthy blog post.

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