Stone Brewing to be Sold to Sapporo Holdings

Stone Brewing Company is being sold to Sapporo Holdings, the Japanese brewery announced today.

Sapporo announced that it has entered into a “membership interest purchase agreement” to purchase the San Diego craft brewery, following Stone’s distribution business being “carved out and transferred to the newly established subsidiary of Stone Holdings.”

The deal, valued at around $165 million with potential for additional payments based on business performance, is expected to close in August.

“This is the right next chapter for Stone Brewing,” Greg Koch, Stone Brewing co-founder and executive chairman, said in a press release. “For 26 years, our amazing team has worked tirelessly to brew beer that have set trends and redefined expectations. To have the interest of a company like Sapporo in continuing the Stone story is a testament to the great beer we’ve created and will continue to create for our fans across the globe.”

“We approached Stone Brewing seeking a partner for our growth plans in the US, and we quickly recognized they were an ideal partner with bi-coastal brewing capacity, loyal fans, superb management, shared cultural values, and commitment to the highest quality standards, ” Kenny Sadai, Chairman, Sapporo USA, added in the release. “This acquisition puts the resources and legacy of the largest Asian beer brand in America together with one of the most innovative and recognized craft beer brands in the world. It’s a perfect fusion of east meets west that is an ideal marriage for Sapporo’s long-term growth strategy in the US”

In Stone, Sapporo secures the ninth-largest, Brewers Association-defined craft brewery by volume in the US in 2021, the 18th largest brewing company overall in the US, and one of the most recognizable names in the craft brewing movement, which was founded by Greg Koch and Steve Wagner in 1996.

Stone employees were informed of the sale during a Zoom call held at 11 pm PST Thursday night.

Arlington Capital Advisors served as the advisory firm for Stone.

Sapporo, Japan’s oldest beer brand having been founded in 1876, previously acquired pioneering craft brewery Anchor Brewing for $85 million in 2017. After several years of production declines, the San Francisco brewery increased its output by +45% in 2021, to 72,500 barrels. Sapporo’s portfolio also includes Sleeman Breweries in Ontario, Canada, which the company acquired for $400 million (CAD) in 2006.

Stone, which produced 326,281 barrels of beer in 2021 (-2%), operates production facilities on both coasts, in Escondido, California, and Richmond, Virginia.

Stone also operates restaurants in Escondido and Liberty Station in San Diego, as well as a restaurant at the San Diego International Airport, taprooms in Oceanside, Pasadena, and San Diego, California, plus one at its production brewery in Richmond, Virginia.

As part of the deal, Stone facilities will produce offerings for Sapporo, which plans to add 360,000 barrels of volume brewed in the US by the end of 2024. Taking on Sapporo’s stateside production would effectively double Stone’s output, according to the release.

Not included in the transaction is Stone Distributing, the craft brewery’s San Diego-based self-distribution arm in its home market, one of the largest distributors of craft beer in the country. The wholesaler will spin off and operate independently.

In addition to Stone offerings, Stone Distributing also sells craft products from 21st Amendment, Avery Brewing, Bear Republic, Brooklyn Brewery, Great Divide, CANarchy (Oskar Blues, Cigar City, Wild Basin) Russian River and Societe.

Since its founding, Stone and Koch, in particular, have championed the independent craft brewing movement, with an axiom “pledging to never, ever, sell out to the man.” That mission statement was linked to a 2016 YouTube video titled: “Why we have chosen not to sell out to big beer.”

The credo, however, was removed from company press releases after January 2020.

In testimony during the craft brewery’s trademark infringement argument against Molson Coors in March, Stone Brewing CEO Maria Stipp said the company has considered a sale process with investor VMG/Hillhouse owed $464 million.

Stipp added that the San Diego craft brewery’s business had declined 20% — or $174 million — in the wake of Molson Coors revamping the branding of its economy line Keystone Light in 2017.

The downturn in sales coupled with a looming June 2023 repayment date to investor VMG/Hillhouse had forced the brewery to consider a sale process. However, Stipp said VMG/Hillhouse has given the company wiggle room on repayment.

“I was given no timeline. I knew it would take time to build back the company and [VMG/Hillhouse] was giving me some time,” she said during questioning.

VMG — a firm that specializes in food and beverage investments — invested $90 million in Stone in mid-2016 via a limited partnership called “VMG Stone Brewing Coinvestment.” The investment was initially earmarked for what Stone called “True Craft,” a platform to keep craft breweries independent, which never got off the ground.

In Friday’s press release, Stipp said she is “thrilled that we have the opportunity to join forces with Sapporo.”

“This unique partnership allows us to preserve the Stone legacy that our fans know and love and will add exponential opportunities for growth, from production to more investment in people, equipment, sales, and marketing,” she added.

M&A activity in the craft brewing space has picked up in recent years, with Kirin-owned Lion Little World Beverages making the biggest splash so far with the 2019 acquisition of New Belgium and last year’s deal for Bell’s Brewery.

Energy drink maker Monster Beverage closed on its acquisition of the CANarchy Craft Brewery Collective in mid-February, giving the company a much-desired turnkey beverage-alcohol operation.

In recent weeks, Modern Times went up for auction, which is still being resolved, and Harpoon parent company Mass. Mr. Brewing struck a deal for Vermont’s Long Trail Brewing.

Sapporo also takes on Stone while it remains locked in litigation over its trademark infringement lawsuit against Molson Coors. In late March, a jury awarded Stone $56 million. That case is far from over, however, as both companies have piled up post-trial motions, with Stone seeking an additional $284 million and Molson Coors looking to wipe out the jury award. The federal judge in the case recently ordered the two companies to work out an injunction.

Although Stone executives discussed potentially irreparable damage to the brewery’s business during the lawsuit, the company’s 2022 fortunes have seemingly turned around.

Stone Brewing shared data this week highlighting the company’s performance year-to-date through May 31, with depletions up 9% year-over-year. The company noted that its outpacing the overall beer category (-3%) and the craft segment (flat).

In the on-premise channel, Stone’s business is up +55% compared to last year, and is also outpacing both the beer category (+22%) and craft (+34%). Over the last three months (March-May), Stone’s on-premise business was back to 95% of 2019 levels.

Another highlight: 29 of Stone’s top 30 distributors have posted positive year-over-year depletions growth in May.

Over the last 13 weeks ending May 28, Stone and New Belgium are the only top 15 brand families growing dollar sales compared to last year, the company said, citing NielsenIQ total US xAOC craft segment data. Dollar sales of the Stone craft and hard seltzer families are up +1.7% in total USxAOC and +7.3% in Southern California xAOC. Volume is up +5.8% in USxAOC and 14% in Southern California.

Stone, citing NielsenIQ data, shouted out several brand highlights over the last 13 weeks, ending May 28:

  • Stone’s mixed 12-pack cans are the No. 5 mixed 12-pack can package in US xAOC;
  • Stone’s mixed 12-pack cans are the No. 2 mixed 12-pack can package in SoCal xAOC — and No. 1 over the last four weeks;
  • Stone Delicious IPA is the only top 25 IPA 6-pack by dollar sales growing year-over-year in US xAOC, minus innovation and non-alcoholic offerings;
  • Buenaveza holds a 27% share of craft Mexican lager dollar sales in US xAOC, up 5.9 points compared to last year;
  • Buenaveza dollar sales are up +32% in US xAOC, whereas craft Mexican lagers excluding Stone are -5%;
  • Stone owns three of the top 12 hazy IPA 6-packs in US xAOC: Fear Movie Lions (No. 5), Stone Hazy IPA (No. 11) and Tangerine Express (No. 12);
  • Over the last 14 days (ending June 10), Buenaveza ranked as the No. 5 draft lagers in the US, according to BeerBoard. That performance came during a peak Buffalo Wild Wings limited time offer period, and the beer was No. 3 for the chain restaurant nationwide;
  • Buenaveza is Stone’s No. 1 draft brand, with on-premise case equivalents up +147% compared to the previous year.

Meanwhile, Stone Distributing’s depletions are up +9.2% year-to-date through June 17, via eostar. Over the last 13 weeks through June 4, Stone Distributing dollar sales are up +12.7% in Southern California for craft, FMBs and hard seltzers, and up 1.5 share points compared to 2021.

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