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One-on-One with Bill Covaleski: Why Victory Brewing Company Selling Stake is Great for Craft Beer

One-on-One with Bill Covaleski: Why Victory Brewing Company Selling Stake is Great for Craft Beer

written by Amy Strauss
Will unique mergers between smaller breweries become the new norm?

It’s been three short days since Victory Brewing Company “tied the knot,” as its president and co-founder Bill Covaleski puts it, with Southern Tier Brewing Company, as part of the new holding company, Artisanal Brewing Ventures (ABV). The two notoriously independent companies—Victory, the 28th largest craft brewery in the country as of 2015; Southern Tier, the 31st largest—bill the new alliance as the “ultimate craft beer collaboration,” but what will joining forces do for both brands?

We tapped Bill Covaleski to dig deeper into why this freshly penned partnership was most appropriate for Victory in 2016, and what he foresees for the future of ABV.

“The only way to get ahead in this growing market is to continue to invest,” elaborates Covaleski. “Think of this alliance as an additive for our company; not something that’s reductive. When investment firms make moves like mergers in no-growth industries, that’s where they terminate employees to cut costs. This is not like that because craft beer is high growth and we are still very hands-on. We spent 20 years taking big risks and we’re all for taking a few more. But, we won’t take risks that will jeopardize our 411 employees in Downingtown, Parkesburg and Kennett Square. They are too precious to us.”

 

Why Sell?

Victory’s decision to explore investment opportunities began late last spring when they were approved for a $52-million bank loan that would enable the company to purchase its 42-acre property in Parkesburg, Pa., where it operates a 212,000-square-foot brewing facility.

“Ron [Barchet; COO and co-founder of Victory] and I knew such a loan was substantial financial obligation for us and our shareholders—who have been patient with us since day one,” shares Covaleski. “We were paying attention to the conditions of the industry around us and investigating ways to bring in other partners that would offer intriguing opportunities for growth, as well exploring those whose aspirations fell in line with where we saw the future of the company.”

Enter: Artisanal Brewing Ventures. Hosting a new model for craft beer partnerships that is far from the inception of large brewing corporations buying the “little guys,” ABV’s goal is to unify craft brewers and build unions between like-minded individuals while preserving their character, culture and products. “ABV allows us to focus on things we are best at, while producing meaningful scale advantages,” continues Covaleski. “This merger is a win for craft brewing values.”

 

Let’s Talk Finances

Numbers of the transaction were not disclosed, but over at Brewbound, they report that “sources familiar with Victory Brewing’s financials and industry multiples said the deal could be valued at more than $120 million.”

To break down the specifics, Covaleski and Barchet each owned roughly 24 percent of Victory Brewing Company. Victory possessed 52 original shareholders, with the co-founders acting as representatives for them in the new company.

“Dating back to 1996, we built an investment group from our friends of family [totaling 52 individuals] and established a board of directors. They’ve always empowered us to make decisions on behalf of the company and always been supportive in pursuing our dream,” shares Covaleski.

As part of the merge, Bill reveals that their investors will receive some cash as part of the transaction and they will also obtain a stake in Artisanal Brewing Ventures.

 

 

The 411 on ABV

ABV's John Coleman, STBC's Phin DeMink

ABV’s John Coleman, STBC’s Phin DeMink

“Because of the merger, we—Victory and Southern Tier—are now part of one legal, financial company—Artisan Brewing Ventures, a company that owns two subordinate companies [Victory and Southern Tier],” elaborates Bill. “We will still operate independently, with our own staffing, etc.”

As part of the new partnership, Bill and Ron will act on Artisanal Brewing Ventures’ Board of Directors. Additional board members include Southern Tier’s Phin and Sara DeMink and ABV’s CEO John Coleman and CFO Bill Wild. Industry consultant and research strategist Bump Williams will act on the board too, as will Ulysses Management’s Paul Barnett and Toby Rando. (Ulysses Management is a New York-based firm that helped form ABV.)

The appeal of ABV’s CEO and CFO lies in the fact that they have worked for Big Beer and know what not to do. Covaleski coins them “InBev refugees” and elaborates the specifics. “Bill Wild was at InBev for 14 years; John Coleman for 23 years, plus 2 years at Pabst. There they grew into great talent, intellect and worked hard for the company,” reveals Covaleski. “They didn’t want to go forward with InBev, but they love beer; both wanting to work with breweries that had a heart and soul and within a business that invested in its people and in quality.”

 

 

Power in Numbers

Billed as a “new strategic framework,” the merger will provide Victory and Southern Tier with capital, security and vision for the future to create the 15th largest craft brewing company in the U.S.

“When you are the 15th largest brewing entity [as opposed to the 28th and the 31st, respectively], you have more leverage and become more important to the wholesalers,” shares Bill. “It’s not our intent to assert ourselves, but navigating the middle tier of the craft beer industry isn’t simple. [Our alliance] will help us strengthen our leverage and better represent our beer as it gets from our breweries to the shelves.”

Joint capacity of the two breweries are estimated to produce over 800,000 barrels in 2016. Currently neither brewery is producing at capacity. Victory is capable of scaling production at its two facilities in Downingtown, Pa. and Parkesburg to about 600,000 barrels. Combined with capacity at Southern Tier’s brewery in Lakewood, New York, Artisanal Brewing Ventures is capable of scaling capacity to 800,000 barrels annually.

 

 

The Future

While Victory and Southern Tier have never collaborated on a beer before, Covaleski suggests that we may see collaborative release in the future. He also relays that since Tuesday’s announcement of their new landmark alliance, a steady stream of breweries have reached out to Covaleski with interest in joining ABV.

“We collectively aren’t on the hunt at this time, but we believe that breweries in more than 10 states may need to look at alliances. ABV helped Phin & Sarah build a new distillery since they joined in 2014 … they aren’t just sitting back and looking at beer—they’re guiding us to help transform the industry,” Covaleski concludes.

About Amy Strauss

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