Sam Adams: Gone Dogfishin’

(Bloomberg Opinion) -- Jim Koch caught himself a Dogfish – and may have reeled in a successor, too.

Koch is the founder, chairman and pint-holding face of Boston Beer Co., better known as the maker of Samuel Adams Boston Lager. This week, the company announced a $300 million deal for Dogfish Head Brewery, its largest acquisition in the more than three decades that Boston Beer has been in business.

It’s partly an opportunistic move by Koch, as valuations for craft brewers have come down in recent quarters. Boston Beer is paying about $1,040 per barrel for Dogfish, versus the $3,440-a-barrel that Constellation Brands Inc. paid for Ballast Point Brewing in 2015, according to a research report by Kevin Grundy, an analyst for Jefferies Group LLC. 

Dogfish Head is based in Delaware, but its peculiar-sounding name comes from the Maine town that its founder, Sam Calagione, frequented during summers as a kid. What’s that got to do with the price of a Dogfish, you ask? Well, this transaction may be as much about Calagione himself as it is about Boston Beer wanting to add more IPAs and sour beers to its portfolio. With Koch turning 70 this month, succession planning is inevitably on his mind. And remember, he’s repeatedly signaled displeasure with the most obvious path to retirement: selling his company at a big-ticket price to Anheuser-Busch InBev AV, the thirsty giant of the beer world that keeps swallowing craft brewers as they pose a threat to its Budweiser staple brand. To Koch, it’d be selling out. (I’ve speculated that Constellation Brands may be a better future home for Boston Beer and that competitive pressures raise the likelihood of a sale.)

Boston Beer is on its second CEO since Koch gave up the title in 2001. Martin Roper retired last year, as has much of the leadership team that Koch built in the early aughts. Current CEO Dave Burwick is in his late 50s, and having moved from company to company in the consumer-products space during his career – PepsiCo Inc. to Weight Watchers International Inc., then Peet’s Coffee and on to Boston Beer – Burwick doesn’t strike me as someone meant to be there for the long haul. Meanwhile, Calagione, who is reportedly 49 years old, will join Boston Beer’s board and “lead brewing innovation for the newly-combined company,” alongside Koch. Calagione and co-founder Mariah Calagione (his wife) are also accepting payment for the deal entirely in Boston Beer stock, which will make them the largest non-institutional shareholders after Koch. He said in the press release announcing the takeover:

Mariah and I believe so much in the future of our merged companies that we are all in. 

As for the financial benefits of the deal, Dogfish Head expands Boston Beer’s lineup of high-margin products, helping to offset lower sales volumes in recent months. The volume of all beers sold in the U.S. fell 0.6% in the 13 weeks through April 21 from the same period a year earlier, with overall sales supported by higher prices, Information Resources data compiled by Bloomberg Intelligence show. Heading into the summer, when spiked seltzers prove popular, Boston Beer’s Truly faces stiff competition from White Claw and other brands. And while those newer, trendier products provide growth, Dogfish Head may do more to bolster Boston Beer’s profitability. The company needs to be pulling both levers to stay in the fight against its ever larger rivals.  

Sam (Adams) and Sam (Calagione) might just be a perfect pairing. 

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.

©2019 Bloomberg L.P.