Ballast Point, San Diego's largest brewery and a craft beer pioneer, is being sold for roughly $1 billion to beverage conglomerate Constellation Brands.
Based in Victor, N.Y., Constellation has more than 100 brands in its portfolio, including Swedish vodka Svedka, California's Robert Mondavi wines and Mexico's Corona, Modelo, Pacifico and Victoria.
Constellation's bid means the brewery's plans for an initial public offering a move that was announced last month is no longer in the stars.
"The IPO was a great option for us," said Jack White, Ballast Point's founder, on Monday. "But we talked to the Constellation folks and we thought this was a better option for us. This allows to focus on what we do best, rather than be a public company.
"We can focus on the beer and let them focus on the business."
The sale was announced one day after the conclusion of San Diego Beer Week. Within the region's brewing community, noted Kevin Hopkins, president of the San Diego Brewers Guild and an employee of Vista's Mother Earth Brew Co., the 10-figure sum commanded attention.
"The very first guy to walk into my office this morning," Hopkins said, "the first thing he says to me is, 'One billion dollars. Are you freaking kidding me?'"
"This is a true game-changer for San Diego beer," said Tom Nickel, owner of Julian's Nickel Beer and O'Brien's Pub, a craft beer bar in Kearny Mesa.
"Ballast Point is one of the breweries that put San Diego beer on the map. To have them owned by a company headquartered in New York, a company that owns Corona and Modelo, is crazy."
Craft beer is no longer a niche product that appeals to a handful of fans. Now, it appeals Wall Street.
"I'm still trying to process this and especially process a billion dollars," said Bart Watson, chief economist for the Brewers Association, an industry group. "It looks to me like we've entered a new era for breweries."
Craft now accounts for 11 percent of U.S. beer sales, and its share is growing. Ballast Point is a notable example, averaging 80 percent annual growth over the last two years. Its beers are sold in more than 30 states, and demand is especially strong for its Sculpin IPA.
While O'Brien's Pub has supported Ballast Point for years beers, the publican worries about the message this $1 billion sale will send to San Diego County's other 114 breweries.
"What does that mean to all the other brewers?" Nickel asked. "This is the kind of money that changes the game. Suddenly, there's a different end goal for people in beer."
Ballast Point beer won't be different, White pledged. Constellation, he said, has guaranteed that this brewery will remain true to its roots. There will be no coast-to-coast ad campaigns similar to the ones touting Corona. No changes in the brewing team, no shift in management.
"As important as that was for us, it was key for them," White said of Constellation. "That's what they are investing in, they want to make sure it's me and my team doing what we do best. It will be the same people making the same beer, with the same culture and approach."
A brand with legs
This is the second time in recent months than an outside corporation has bought a local brewery. In September, Saint Archer was purchased by MillerCoors for an undisclosed sum.
Yet the two sales are markedly different. Located an easy hike from Ballast Point's Miramar headquarters, Saint Archer is smaller it may produce 35,000 barrels of beer this year, as opposed to Ballast Point's estimated 300,000.
Moreover, the not-quite 3-year-old Saint Archer has not been a key player in San Diego beer.
In 1992, White and a handful of investors opened Home Brew Mart, a Linda Vista shop that sold malt, hops, yeast and advice to amateur brewers. Four years later, Ballast Point Brewery was added to the shop.
The main brewery eventually moved to Scripps Ranch, then to Miramar, where the company has bottling and canning lines, tasting room and restaurant. There's also a restaurant, tasting room and pilot brewery in Little Italy.
Ballast Point Spirits, which makes rums, whiskeys and other potables, was not part of the Constellation sale. It remains a separate company, owned by White and Yuseff Cherney, head brewer and co-founding distiller.
Hopkins predicted more growth for Ballast Point: "Constellation has to feel that Ballast Point has legs, that this will pay off nationally and even globally."
White said Ballast Point wants to build a brewery, "probably on the East Coast," but has not found an appropriate location. Two local competitors Escondido's Stone and San Diego's Green Flash are building breweries in Virginia.
Ballast Point's sale is expected to be completed this year, financed with cash and debt, Constellation said in a statement.
Constellation, which had long focused on wine and spirits, acquired the rights to sell Corona and Modelo in the U.S. in a $5.3 billion deal with Anheuser-Busch InBev NV in 2013. Ballast Point's sales volume is expected to double to almost 4 million cases this year, with net sales hitting $115 million, Constellation said.
Constellation shares rose Monday, closing at $135.26 -- a gain of 2.31 percent. The shares already had gained 35 percent this year through the end of last week.
Beer Consolidation
The deal continues a trend of consolidation in the brewing industry, led by AB InBev's planned $107 billion takeover of SABMiller Plc. But even before AB InBev made its formal offer for SABMiller last week, brewing companies had been snapping up craft producers, in whole or in part, to get a piece of the fastest-growing segment of the U.S. beer market.
Since 2011, AB InBev has purchased Goose Island Brewing in Chicago; Blue Point Brewing in Patchogue, New York; 10 Barrel Brewing in Bend, Oregon; Elysian Brewing in Seattle; and Virtue Cider in Fennville, Michigan. Besides the MillerCoors purchase of Saint Archer, Heineken NV purchased a 50 percent stake in Lagunitas Brewing Co., and AB InBev said it would buy Los Angeles-based Golden Road Brewing.
Employing about 500 people, Ballast Point will remain headquartered in San Diego. The Miramar production brewery is large enough to produce about 900,000 barrels a year, triple the current figure.
Prior to the sale, the brewery was owned by White and several dozen investors, including friends, family and key employees, such as Cherney.
"This is an exciting opportunity for us," White said. "We've worked hard over the years, and we're going to keep doing that."
Bloomberg Business contributed to this report.
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