Financial services firms have responded positively to the news of energy drink maker Monster Beverage Corporation striking a deal to acquire the CANarchy Craft Brewery Collective.
“Overall we view this transaction as a strategic positive as it is 100% incremental to Monster’s existing business and should function as a springboard for Monster to enter the alcoholic beverage sector as CANarchy is the sixth largest craft brewer in the U.S. with seven distinct brands,” Goldman Sachs equity research analyst Bonnie Herzog wrote.
The $330 million cash deal represents about 19% of Monster’s cash on hand, according to RBC Capital Markets managing director Nik Modi, who wrote that his team “view[s] the deal positively for [Monster] as it allows the company to enter a new growth category for a limited cash outlay.”
Monster’s acquisition of CANarchy is the most recent in a string of joint ventures and other collaborations between non-alcoholic beverage companies and beverage alcohol makers. Last week, Constellation Brands – rumored to have been a target for a Monster merger in November – announced a partnership with Coca-Cola to produce Fresca Mixed, a spirits-based, ready-to-drink cocktail under the popular citrus soda water brand. Coca-Cola also partnered with Molson Coors to produce Topo Chico Hard Seltzer. PepsiCo, which has filed trademark applications for hard seltzer under its Rockstar Energy brand, and Boston Beer Company have collaborated to launch HARD MTN DEW.
“The CANarchy Craft Brewery acquisition may imply that Monster decided to go on its own in terms of alcoholic beverage manufacturing, but it may still need a larger scale alcohol distribution network,” Modi wrote. “Our channel checks suggested that conversations between Monster and Constellation Brands were still ongoing as a few weeks ago and we don’t believe the deal automatically takes the potential of a broader partnership with Constellation/Coca-Cola off the table.”
Jefferies equity analyst Kevin Grundy described the $330 million valuation for CANarchy’s seven brands as “reasonable.” Monster paid about $675 per barrel, based on CANarchy’s 2020 output of nearly 490,000 barrels, which is less than twice the roll-up’s sales and “roughly the same sales multiple” that Anheuser-Busch InBev paid for the remaining stake of Craft Brew Alliance in November 2019, Grundy noted.
Credit Suisse equity research analyst Kaumil Gajrawala pointed out that CANarchy’s per-barrel rate is “below the 10-year average of ~$1,000/barrel craft transactions, which peaked in 2015-2016.”
“Considering CANarchy’s likely pandemic struggles, the wait-and-see approach for Monster has served them well,” he wrote.
That Monster has entered the beverage alcohol industry via a “more capital intensive collection of craft beer businesses” with lower operating margins is “noteworthy,” Grundy wrote.
“Monster’s decision stands in contrast to recent (and more limited ‘one-brand’) partnerships in the alcohol space,” he added, referring to the deals Molson Coors, Constellation and Boston Beer have made with their respective soft-drink-producing partners.
Within CANarchy’s portfolio, Tampa, Florida-based Cigar City accounts for about 50% of the product mix, followed by Oskar Blues at about 20% and Wild Basin hard seltzer at about 10%, according to Jefferies. The portfolio reaches about 6.5% of all commodity volume (ACV), according to RBC.