Constellation Brands to buy San Diego craft brewer Ballast Point for $1 billion, WOW!!!!!

Home brewers who simply want to concoct a great-tasting beer for friends and family now have a reason to aim higher. A billion reasons, actually.

San Diego’s Ballast Point, a craft brewery that got its start in the back of a home-brew supply store in 1992, is being bought by alcoholic beverage conglomerate Constellation Brands Inc. The price: $1 billion.

Those aren’t beer goggles you’re wearing. That staggering amount reflects the frothy market for craft brews, which are steadily outpacing growth of the beer industry as a whole as consumers develop a taste for bold and bitter suds.

“It’s hard to digest,” Bart Watson, chief economist for the national Brewers Assn., said about Ballast Point’s price tag. “But it shows where the growth is heading. They’re willing to pay a high price because they believe they will see continued growth and a return on investment.”

Big beer’s interest in craft brands is on the upswing. In just the last few months, Heineken bought a 50% stake in Lagunitas Brewing Co. of Petaluma, Calif., MillerCoors acquired San Diego’s Saint Archer Brewing Co., and Anheuser-Busch InBev bought Golden Road Brewing of Los Angeles. Prices were not disclosed.

The Ballast Point deal had jaws dropping in San Diego, especially for those connected to the city’s celebrated beer scene. “The very first guy to walk into my office this morning, the first thing he says to me is ‘$1 billion. Are you freaking kidding me?’” said Kevin Hopkins, president of the San Diego Brewers Guild and an employee of Vista Mother Earth Brewing.

Even Ballast Point’s chief commercial officer, Earl Kight, admitted surprise when confronted with the size of the deal.

“I can’t believe it either,” he said in a phone interview Monday.

The barrage of craft-beer deals reflects a massive shift toward consolidation in the alcohol industry this year as beer behemoths try to capture market share as overall sales growth stagnates.

That was one of the chief motivations behind Anheuser-Busch InBev’s agreement last month to buy rival SABMiller in a mega-deal valued at $110 billion, analysts say.

Craft beer, however, is bucking the trend.

Craft’s market share for beer in the U.S. grew to 11% in 2014 from 4.9% in 2010. Retail sales of craft beer in 2014 totaled $19.6 billion, up from $8.8 billion in 2010, according to the Brewers Assn.

California boasts the nation’s largest number of craft breweries, with estimates from 430 to 600 in the state.

“Per capita spending on alcohol is stagnant in the U.S.,” said Nick Petrillo, an analyst for IbisWorld. “Where it’s not stagnant is craft beer. It’s the reason why the industry’s largest macro breweries [are buying craft breweries]. I guarantee going into 2016 it’s something we’ll see more frequently.”

Ballast Point started selling beer commercially in 1996 and has grown into the 31st largest craft brewer in the country, according to the Brewer’s Assn.

Company revenue totaled $48.9 million last year on sales of 122,890 barrels. Ballast Point expects to top 275,000 barrels by the end of this year and reach sales of $115 million.

The brand is known for its American India pale ales, which have emerged as the antithesis of the pale, watery lagers that have come to define giants like Budweiser.

Ballast Point produces more than 15 kinds of beer year-round, along with seasonal beers and craft spirits. Its primary sellers are its Sculpin and Grapefruit Sculpin India pale ales.

With Constellation, Ballast Point gets a huge infusion of cash to propel expansion and pay off debt. The brewer has also quashed plans to sell shares after filing papers last month with the Securities and Exchange Commission in preparation for an initial public offering.

Constellation, which owns brands such as Robert Mondavi Winery and imports Mexican beers such as Corona, Modelo Especial and Pacifico, will give Ballast Point access to a wider distribution network and stronger buying power for ingredients and equipment.

Constellation said it would allow San Diego’s biggest brewery and its 500 employees to operate autonomously. That’s important for acquired craft brands, which have had to combat the perception they were “selling out” to giant corporations.

“The IPO was a great option for us,” said Jack White, Ballast Point’s founder. “But we talked to the Constellation folks and we thought this was a better option for us. This allows to focus on what we do best, rather than be a public company.

“We can focus on the beer and let them focus on the business.”

Rob Sands, chief executive of Constellation, said Ballast Point has been a key driver of craft beer sales in the U.S.

“Their business philosophy and entrepreneurial spirit perfectly align with our culture, and we look forward to strengthening our position in the high-end beer segment with what is arguably the most premium major brand in the entire craft beer business,” Sands said in a prepared statement.

The Victor, N.Y., company has more than 100 brands in its portfolio and is the third-largest producer and marketer of beer in the U.S. Its strategy has been to accumulate as many brands as possible to overcome lackluster growth in booze consumption, Petrillo of IbisWorld said.

“Mergers and acquisitions is the name of the game,” Petrillo said.

The strategy appears to be working. Company shares have quadrupled in value since late 2012.

On Monday, Constellation Brands stock climbed about 2% to $135.26 on news of the deal, which will be financed with cash and debt. The sale is expected to be finalized by the end of the year.

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Peter Rowe from the San Diego Union-Tribune contributed to this report.