Brendan Watters knew there was something special about Ballast Point. The co-owner and CEO of Kings & Convicts Brewing Co. in Highwood, Illinois made several visits to the Miramar, California-based brewery with partner Chris Bradley while scouting a second location of their own. “We just kept coming back,” says Watters . “We enjoyed the way the employees loved the brand, and we could see how they were hurting because it was no longer independent.”
Those visits paved the way for Kings & Convicts’ recent acquisition of Ballast Point from Constellation Brands, less than five years after Constellation’s $1 billion purchase of the California craft brewer. Reports valued the deal between $75 million and $200 million, including the Ballast Point brand, the Miramar facility, and five brewpubs and taprooms in California and Chicago. Left out of the agreement was Ballast Point’s Daleville, Virginia brewery, which opened three years ago.
Watters and Bradley each hold an approximate 20% stake in the combined business, while Richard Mahoney, chairman and former CFO of the Wine Group, has a 24.9% stake. Private investors control the remaining shares. “They’ve all done business with me before, or I’ve known them for a long time,” says Watters of his partners. In announcing the deal late last year, Bill Newlands, Constellation president and CEO, said, “Trends in the U.S. craft beer segment have shifted dramatically since our acquisition of Ballast Point. We’re pleased to transition the business to an owner that can devote the resources needed to fuel its future success.”
The purchase of a major craft player by a tiny Midwestern brewery surprised most industry observers. Watters recalls a casual meeting with a Constellation executive last summer. “I asked him, ‘What are your plans for Ballast Point?’ He responded, ‘Why? Do you want to buy it?’ I said, ‘Yes.’” Over the course of the next few months, Watters and Bradley lined up the investors, met with advisors, and applied for the necessary licensing. Senior Ballast Point managers were notified in November, and the day after the December announcement, the pair met with 80% of Ballast Point’s employees in California and Chicago. All 560 employees were retained.
Study In Contrasts
The Kings & Convicts’ name pays tribute to the brewery’s foreign-born owners; Bradley was born in the UK, and Watters in Australia. Watters’ resume includes a stint as vice president of corporate development at Le Meridien Hotels & Resorts, at the same time that Mahoney served as president and COO. Watters later founded his own hotel chain, Boomerang Hotels—in which Mahoney was also an investor—which he sold to Red Lion Hotels in 2015. In 2017, Watters, a homebrewer, and Bradley—who had worked in biochemistry and technology, and who lived in the same Chicago suburb as Watters—launched Kings & Convicts.
Watters oversees the company’s finance, marketing, and sales functions, while Bradley—who serves as COO and head brewer—is responsible for operations, including brewing, packaging, and quality assurance. “I love that brewing has both a technological and artistic side to it,” Bradley says. Kings & Convicts’ top selling brands are King’s Bitch IPA and Hougoumont Pilsner, which are distributed in Illinois’s Lake County and southern Wisconsin. The tiny Highwood brewery, with just ten employees, is already producing at its capacity of 600 barrels a year. But plans are underway for a second, much larger facility in Pleasant Prairie, Wisconsin, halfway between Chicago and Milwaukee, Watters notes. That site—with a capacity of 150,000 barrels, a large tasting room, and an events space—is expected to open later this year, according to Bradley, and distribution in Wisconsin will be expanded.
The small-scale Kings & Convicts contrasts with Ballast Point, whose volume—although dramatically lower in recent years from its peak following the Constellation acquisition—puts it among the largest craft brewers in the country. Founded in 1996 by a group of homebrewers, Ballast Point soon developed a cult-like following, driven by labels like its popular Sculpin IPA. Watters estimates that Ballast Point reached peak sales volume of some 400,000 barrels in 2016, partly driven by Constellation’s national expansion initiative. But the backlash to the acquisition, coupled by the trend toward hyper-local craft breweries and away from national players, adversely impacted the business. Indeed, Constellation recorded several large impairment charges in the last couple of years, concessions that it overpaid. Ballast Point’s 2019 volume was down to approximately 200,000 barrels, says Watters, who adds that Constellation’s sales and marketing approach to brands like Corona Extra and Modelo Especial didn’t work for a craft brand like Ballast Point.
Having Fun Again
Even before the deal had closed, Watters and Bradley were busy preparing for the new Ballast Point. While there are no plans to exit any markets, one of their primary goals is to refocus on target markets, including San Diego, the rest of Southern California, and Chicago. Other key markets include Wisconsin, New York, Pennsylvania, Virginia, and Florida. Innovation will also be ramped up. Watters pledges to bring out a new beer each month, stating that many have already been tested by Ballast Point’s research and development team, but haven’t seen the light of day. Such limited-edition releases will be ideal for bars that look to constantly rotate their draft offerings, he notes.
Sales and marketing will also be enhanced. Noting that Ballast Point hasn’t had its own sales team for the last two years, Watters says 15 new salespeople will be hired, reporting to the new vice president of sales, Mike Giordano. An in-house marketing team will also be added, with an early emphasis on the San Diego market. “We want the people in San Diego to have fun with Ballast Point again,” Watters says, pointing to plans for brewery involvement in local festivals and a Ballast Point fishing team. He adds that social media support will be brought back in-house.
According to Watters, international sales of Ballast Point beer are second only to those of California, with South Korea, Australia, New Zealand, Sweden, China, and Japan among the leading export markets. The new company is hoping to further ramp up that business for both its brands. In fact, upon the closing of the deal, production of Kings & Convicts beers was expected to begin in Miramar for sales to Australia and New Zealand. Bradley adds that once the Pleasant Prairie brewery is complete, Ballast Point beers will be brewed there, allowing for “speed to market and fresher beer.”
Mahoney’s role at the expanded Kings & Convicts, meanwhile, will be consultative. “He’s a phone call away, as he’s been for me for the last 20 years,” Watters notes. “Richard’s a sounding board and provides guidance. He’s been spot-on for two decades.”
Bradley says that while Ballast Point distributors were surprised when the deal was announced, many have expressed their approval that the brand will again get the airtime it deserves. In addition to distributors, he and Watters have been meeting with retailers to thank them for their support over the years. In cases where Ballast Point may have been dropped from draft handles or beer coolers, they’re trying to get those placements back. “We’re telling the trade that the deal is about bringing independence to Ballast Point and providing dedicated resources to the channels,” says Bradley.
Watters says there’s no reason a similar deal couldn’t be hammered out by other emerging craft brewers. “Craft beer is completely different from macro beer,” he says. “The way to engage is at the local level. It’s more about the personality of the brand, the brewery, the people behind it, and the liquid in the bottle. But with macro beer, it’s all about the brand. They’re two completely different business models.”
Watters doesn’t rule out that Kings & Convicts itself could pursue more acquisitions down the road. Pointing to Ballast Point’s massive Miramar brewery that’s underutilized, he says, “We’ll look at every opportunity if and when they arise.” For now, though, he and Bradley are enjoying the distinction between their two brewing concepts. “Ballast Point has everything that Kings & Convicts doesn’t,” Watters says. “It has a fantastic brewing operation with room to grow, a quality control function second to none, taprooms, and a brand name that is synonymous with San Diego. But Kings & Convicts has everything that Ballast Point lost when it was acquired by Constellation, including an independent streak to be able to innovate and do things in a more flexible manner. We’re bringing back that opportunity for Ballast Point. This deal is a marriage of two really key parts.”