Craft Brewer Watchlist: Craft Brew Alliance Inc (BREW), Boston Beer Co Inc (SAM)

Page 1 of 2

Consumer goods companies (CGCs), once they are well established within a specific geographic area, constitute durable cash machines. That’s the reason why so many investors (like Warren Buffett) pay such high earning multiples to own them. Once a CGC has built strong distribution networks within its area, it has also built a competitive advantage that is extremely difficult to defeat. This is reason to explain why international companies such as Anheuser-Busch InBev NV (ADR) (NYSE:BUD) rather buy established national champions to start new companies from scratch when they go into new markets.

Boston Beer Co Inc (NYSE:SAM)The natural consolidation process I see in all CGC segments has been particularly strong in the beer business. It not only happens internationally but also within the US. For years now, companies have been buying one another. Nowadays the market seems quiet concentrated since just one player (BUD) controls 40% of the market. That said, new trends in the beer industry have permitted a whole segment of the industry to emerge. Craft beer makers such as Craft Brew Alliance Inc (NASDAQ:BREW) or Boston Beer Co Inc (NYSE:SAM) are surging fast and M&A activity is always latent. In other words, they always are potential M&A targets. As a passive investor, those companies might be interesting propositions if the price they are selling for in the public market is below the price a beer giant would pay to take it private.

The case for Craft Brew Alliance Inc (NASDAQ:BREW) is special. The company is growing fast but a significant share of its volume is sold in exclusive pubs or restaurants the company controls. In a few words, the company has found a way to push volume creating its own demand. Craft Brew Alliance Inc (NASDAQ:BREW) is growing its top line at a 12% year-over-year (YoY) rate and has a great brand such as Kona which is growing sales at rates well above 25% YoY. Craft’s other brands like Redhook and Widmer Brothers are growing slower but they already have some brand equity into them. The company doesn’t seem overly expensive selling at 2013 11x EV/EBITDA, but with a market capitalization of $125 million, it seems too small for a giant like BUD. BREW could be acquired by not only a bigger brewer but also by a Private Equity (PE) firm looking to ameliorate its seemingly low 8% EBITDA margin (BUD’s EBITDA margin is above 39%). The fact that BREW is almost debt free would make it an even more attractive M&A candidate for a medium sized PE firm. My opinion on this name is that it is going to be taken private at some point and at a slightly higher EV/EBITDA multiple. Though, nobody knows when and time is very valuable.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!