It’s the end of an era as Full Sail Brewing’s employees and founders voted on Friday to sell to Oregon Craft Brewers Co., which is a local investment group formed by Encore Consumer Capital a San Francisco based private equity firm.“The votes were returned confidentially to our ESOP attorney. It passed nearly unanimously,” said Full Sail founder and CEO Irene Firmat.
While this news is sure to not make as big a splash as the recent sales of 10 Barrel Brewing and Elysian, it is in many ways more important, as Full Sail has been one of the pioneers of the industry and produced more beer (115,000 bbl) in 2014 than 10 Barrel (40,ooo bbl) and Elysian (50,000 bbl) combined making, it the 25th largest craft brewer in the country.
Irene Firmat and Jamie Emmerson © The New School
Both 10 Barrel and Elysian are also examples of quick growth in a very short period of time–one of the reasons why 10 Barrel may have been in a difficult financial position and willing to sell. Full Sail has experienced its ups and downs, but has largely avoided pitfalls and continued on a steady stream of growth by going its own direction. Ignoring trends like barrel-aging, fresh hops, double IPAs, and sour beers (for the most part, though the brewery certainly has dabbled), Full Sail instead focused energy on re-creating the craft lager and session beers in a movement in which it was way ahead of the times. Full Sail’s location in Hood River, Oregon, is also undoubtedly responsible for the explosion in the number of breweries in the town and the entire Columbia River Gorge area in Oregon and Washington; Full Sail brewers have opened favorites like Double Mountain, Logsdon Farmhouse Ales, pFriem Family Brewers, and Everybody’s Brewing.
Full Sail’s growth has not always been smooth; in 1999 the company moved into an ESOP (Employee Ownership Program) rather than be put up for sale. That model has worked well, with other breweries–most notably New Belgium–following in their footsteps. Then in 2012 Full Sail lost the Henry Weinhard’s beer contract, which it had held for 10 years from SAB Miller. That investment had allowed to Full Sail to reinvest back into its brewery, keep its debt low, and sustain growth. Full Sail was making so much Weinhard’s beer that just the Weinhard brand alone was ranked as the 7th largest in Oregon. At that time I worried for the future of Full Sail, as many of its core beer lines were flat and had become dull, but the company re-upped on the #1 in-house brand, Session.
The Session beer brand by Full Sail may have been the smartest and most successful product launch of any Oregon brewery since the start of the craft beer revolution. Short, stubby, highly recognizable bottles of cheap (but still craft) tasty light lager were a huge seller, and the brand has sustained with spin-offs Session Black, Session Fest, and recently Session IPA. When growth started to go flat, Full Sail launched the beer into new markets and took Session beer to bar taps for the first time in a move the company said would never happen. The pessimist might suspect the recent huge expansion of the Session brand was in anticipation of putting the brewery up for sale, driving up production numbers and the value of the company. Though Full Sail Chairman Irene Firmat says that the brewery was approached unsolicited last September, that doesn’t mean the brewery was not preparing for a buyer. Anheuser-Busch paid an estimated $400 per barrel times the annual 60,000 bbl production output of Blue Point Brewing when it purchased that company in February of 2014; this would place an estimated value of $46 million on the sale of Full Sail.
As I mentioned before, a pessimist might also suspect that early warning of the Full Sail employee vote on approval of the sale was a formality and the sale was a foregone conclusion. It makes for a terrific PR move by leaving the decision to the employees who own an estimated 58% of the company. Though that is a solid majority, you could Intuit founders Jamie Emmerson and Irene Firmat own 42% and would only need a small percentage of employees to agree to the sale. But according to Firmat,
“The employee vote was not a sure deal. Jamie and I don’t have a majority position. So even though we felt that this was a very good offer for all our shareholders, it was not a sure thing until the votes were counted. We did an early reveal because once notices went out to 78 employees, we thought confidentiality would be difficult to maintain and it would be better to have the facts out to minimize speculation.”
Still, it would seem the deal was done as Firmat and Emmerson could reverse any “no” decision by the employees as they are the two sole trustees of the ESOP. Not that the deal is a bad thing for the employees who–based on their time at the company–will likely earn four to five figures in the buyout as well as keep their jobs. The other good news is that Full Sail would still be counted among the “craft brewers” as defined by the Brewers Association by selling to an equity firm rather than a macro brewer like Anheuser-Busch.
The bad news is that brewery sales to private equity firms might have a worse track record than those sold to SAB Miller and Anheuser-Busch. While the previously mentioned companies’ business is at least making and selling beer, both are only concerned with making money, but an equity firm will quickly sell off companies to make a buck and has no interest in continuing the products. That last statement seems to be the case here; the formation of a new company called Oregon Craft Brewers Co. distracts from the fact that the real owners are Encore Consumer Capital, a group that holds no other breweries or beverage companies. Oregon Craft Brewers Co. is a brand new formation that also has no history in the industry. While Full Sail posits that its buyer’s lack of experience guarantees the current employees jobs (which may be true), it also puts into question the company’s future direction of primarily profit-driven endeavors. This could mean cutting costs and looking for ways to make higher profit margins on products, and perhaps launching into more states or countries. After raising the value further, Full Sail could be sold off again, as is the case with Portland Brewing/MacTarnahan’s, which has been bought and sold a few times and is now owned by a Costa Rican conglomerate. Encore Consumer Capital already has an established track record of buying and selling companies a few years later. It has been alternately reported that Jamie Emmerson and Irene Firmat would either plan their immediate exit or stay with the company. Irene clarified this: “We have committed to stay a year to insure that this transition goes smoothly. After that we will see.” After seeing Full Sail through the transition, I think we can expect little substantial change immediately, but I worry what will happen in a few years after they continue to blow up the Session brand. Will we see a day in the future where a craft brewery on the east coast is contract brewing Full Sail beer as it becomes its own version of the formerly prestigious Henry Weinhard’s?
Firmat admits, “It is what they do, but they have a track record of holding on to companies for a longer period of time and in the meantime they invest to grow it. Our distributor alignments make a purchase by a big brewer very difficult and more expensive and they are very aware of that.”
Let’s hope she is right. At the very least, Irene Firmat and Jamie Emmerson have followed through with their commitment to employee owners, giving them a nice bonus to their 401K’s while making a happy exit for themselves. That is much better than Anheuser-Busch is offering to the casualties of its acquisitions.