Again, a sale of Boston Beer is talked up by analysts

Never underestimate the money men’s powers of persuasion. While Boston Beer, the number two craft brewer in the country, is busy implementing its turnaround plans after years of falling beer sales, analysts and other commentators are pushing hard for Mr Koch to sell his company.

If the company fails to turn around its business in the next year, it could mean a buyer comes knocking, a Credit Suisse analyst suggested in a report on 26 September 2017.

The brewer has struggled to boost its performance as the craft beer industry gets more crowded. Drinkers now have more than 5,000 craft breweries to choose from, and the brewer of Sam Adams is losing market share. Boston Beer also is still searching for a CEO to replace Martin Roper, who will retire next year.

“Although founder Jim Koch seems determined to turn the business around, we think the likelihood of a takeout goes higher if Samuel Adams’ rejuvenation efforts ultimately fail next year,” Credit Suisse said.

Mr Koch has long made it clear that he does not like the idea of selling his company. Still, Credit Suisse said that could change if the relaunch of the company’s beers with the new marketing doesn’t revive sales. Under those circumstances, Molson Coors would be “the most agreeable candidate” for Mr Koch to consider as a buyer.

Boston Beer’s share price continues to slide as its overall sales are projected to drop 15 percent this year and five percent in 2018.

Boston Beer’s market capitalisation (the total value of its shares) is roughly USD two billion. It has its headquarters and pilot brewing facility in Boston, plus large breweries in Breinigsville, Pennsylvania, and Cincinnati. Its ventures include the Angel City brand and its Los Angeles brewery, the Concrete Beach brand and brewery in Miami and the Coney Island brewery in Brooklyn.

Overall, Boston Beer has more than 1,100 employees and a distribution network that includes all 50 states and a modest export business, writes the commentator Jason Notte.

He draws attention to the fact that in recent years Mr Koch has been selling off some of his stash of controlling Boston Beer Company shares to provide liquidity to the company.

“While there have been bright spots for Boston Beer this year, they are coming from all the wrong places. The company has seen growth from its Twisted Tea and Truly Spiked & Sparkling flavoured malt beverage lines but continues to see sales of its Samuel Adams beer and Angry Orchard cider fall,” says Mr Notte.

Moreover, Boston Beer’s actual beer production has declined from 89 percent of overall volume output in 2010 to just 57 percent last year. That could cost it some credibility among beer geeks, as the Brewers Association’s definition of a craft brewer demands brewers produce a majority of their alcohol volume in beer, but that damage may already be done.

Could Molson Coors buy Boston Beer? In 2015, it acquired the balance of the MillerCoors joint venture it had with SABMiller and the Miller brand globally for USD twelve billion. Its debt load is currently over USD ten billion or 4.8 times EBITDA. While the Miller deal made sense, buying Boston Beer does not at first glance. What would Molson Coors get in exchange for its money? A business that not even Mr Koch could turn around? Would Molson Coors be any luckier in this respect?

What is more, Molson Coors will need to ponder the question if national brands like Sam Adams are the future of craft beer, considering how much trouble Constellation Brands, the number three brewer in the US, has in getting its Ballast Point acquisition (for USD one billion) there?

Let’s face it, Boston Beer is no longer considered an up and coming craft beer brand. Since 2015, Molson Coors’ North American company MillerCoors and its Tenth and Blake craft beer division have taken stakes in San Diego’s brewer Saint Archer; Athens, Georgia-based Terrapin; Eugene, Oregon-based Hop Valley; and Granbury, Texas-based Revolver, which better fit this ticket.

Still, Boston Beer could benefit from a sale either to Molson Coors or private equity because they would then be in a position to take the company private and afford the new management the opportunity to turn the brands around away from investors’ beady eyes.

Commentators suggest that, with the craft beer market maturing, growth flattening and the Samuel Adams brand losing both steam and relevance, Mr Koch may want to ponder that possibility sooner rather than later.