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With Funky Buddha Purchase, Constellation Shifts Acquisition Strategy to ‘Local Brands'

By: Chris Furnari & Justin Kendall - Brewbound - Date: 08/11/2017

Constellation Brands has acquired fast-growing Florida-based craft beer producer Funky Buddha and, in the process, formed a new “High End Craft and Specialty” business group specifically tasked with overseeing the company’s present and future craft brewery purchases. 

Financial terms of the deal, which closed yesterday, were not disclosed. The structure is similar to Constellation’s 2015 all-cash purchase of San Diego’s Ballast Point Brewing, which was worth $1 billion, Brewbound understands. A sale price was not disclosed, but the deal is for 100 percent of the company, according to KC Sentz, who co-founded the brewery with his brother Ryan Sentz. 

“We felt Constellation was definitely the right company to take the torch and run with it, and build Funky Buddha into the brand both of us always hoped it could be on a scale that we felt that we couldn’t get it to,” he told Brewbound. “To me, there’s no better company in the alcohol space that builds brands like they do.” 

And now that Constellation Brands owns craft breweries on both U.S. coasts, the company – which also owns a variety of wine and spirits labels — has opted to split its beer division into two separate units. 

The move, according to Paul Hetterich, the company’s executive vice president, is aimed at enabling Constellation to more effectively manage a growing portfolio of imported Mexican labels and domestically brewed craft offerings.

“It is going to do a few things,” Hetterich explained. “The group will manage our individual breweries – there will be a GM in charge of overseeing Funky Buddha and Ballast Point – and there will be a common sales force.” 

Certain areas of the craft and specialty businesses – including procurement, finance, human resources and information technology — will continue to be managed by executives within the broader Constellation beer division, Hetterich said. That division includes the popular Corona, Modelo and Pacifico brands. 

“It is a matrix environment for some functions, but stand alone for other functions that we think are intrinsic to maintaining these brands’ DNA, customer experience and all that,” he said. 

Marty Birkel, who had been serving as the president of Ballast Point following the departures of several key executives last summer, will take on a new role as the president of the High End Craft and Specialty group.

As for the Funky Buddha purchase itself, Hetterich said it was driven by a desire to acquire a brand in a key Constellation market. “There are criteria we think is important for how we expand,” he said of possible future acquisitions. “As we do so, it should be in a market or an area that is big enough. So if the beer only stays ‘local,’ you could still have a meaningful business there. That is why we landed on Funky Buddha.” 

Craig Farlie, a managing director with Farlie Turner & Co., who advised Funky Buddha on its sale to Constellation, echoed Hetterich and said the Fort Lauderdale-area craft brewery wasn’t “shopping” for a buyer. “Their phone has rung a bunch over the last 24 months,” he said. “They are fast-growing and have quality liquid. Funky Buddha is located in the third largest state in the country – one that is incredibly under-indexed in craft beer — so this provides Constellation great access to this market.” 

Farlie added that by acquiring a craft brewery in Florida, which is a popular vacation destination, Constellation would have a better chance of delivering a brand that resonates with customers along the eastern seaboard, should the company look to expand distribution of Funky Buddha beers. “If Corona is vacation in a bottle, I think Funky Buddha has to be viewed in that same prism,” he said. 

For his part, Hetterich said Constellation could soon look to grow its newly formed specialty unit by acquiring craft breweries in markets such as Illinois, Texas and New York. “It follows population and beer consumption,” he said of the strategy. He added that the company has taken a more “local” focus with its acquisition strategy, after category-wide sales slowed and Ballast Point didn’t grow as fast as the company originally expected. “At the time we acquired Ballast Point, we thought there would be more national brands that broke out,” he said. “Things went more local, and it doesn’t appear that you’re going to be able to build new national brands in the space really quickly. That made us recognize – we need a lot more brands in the portfolio to build up a reasonable presence in the craft space overall.” 

Funky Buddha expects to produce as much as 35,000 barrels of beer in 2017, Sentz told Brewbound. The company produced about 27,000 barrels of beer last year. The company, which is butting up against capacity constraints and is capable of producing 45,000 barrels annually, is in the midst of planning for an expansion. “We definitely found ourselves at a crossroads,” Sentz said. “Are we going all-in again and taking it to the next level? Or let’s find somebody that we can work with and grow it together, and that’s the path we took.”

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