Dogfish sells 15 percent stake to private equity firm

Dogfish Head Craft Brewery sold a 15 percent stake in the company to a New York-based private equity firm.

But don’t expect Dogfish Head to change the home-grown, off-centered approach that has made the company Delaware’s most successful craft brewery.

“It’s not that big a deal to us,” founder Sam Calagione said. “There will be no change in leadership, control or the way we do business.”

In fact, Dogfish Head is already planning to buy out new minority-share owner LNK Partners “after a number of years.”

“What this deal will do is give us a great external resource for building our brand,” he said. “But they know our goal is to buy them out. I can say for sure that Dogfish Head will stay family-controlled and family-owned for the foreseeable future.”

LNK’s investment will provide the company with capital and outside expertise to deepen its reach in the 31 states where its products are currently sold, as well as add new markets in the future, he said.

Calagione declined to provide specific financial terms of the deal, except to say LNK will get a newly added seat on what is now Dogfish Head’s four-member board of directors.

That seat will be filled by LNK partner Phil Marineau, whose career has included stints as president and CEO of Levi Strauss & Co., CEO of Pepsi-Cola North America and chief operating officer at Quaker Oats Co.

“Our goal is to help Sam achieve his objectives of continuing to grow and maintain a strong position in the craft beer category, especially at a premier price point,” Marineau said. “I think that’s very doable considering his position as an orginator of the craft beer movement and his commitment to those princiapls.”

Although he lives in San Francisco, Marineau said would be attending Dogfish Head’s board meetings in person.

“I’ve got a whole refrigerator of Dogfish Head right now,” he said. “They sell them at Whole Foods out here.”

LNK partner’s website says the firm typically invests $50 million to $150 million with half of those investments for minority equity interest. The firm has previously invested in and consulted with café chain Au Bon Pain, apparel manufacturer PVH and retailer Performance Bicycle, among others companies.

“LNK has a great experience helping high-end and family-owned brands navigate the complexities of their industries,” Calagione said. “We view them as a resource for developing the tactics we’ll use to meet our goals, but those goals and our overall strategy will still be made by the internal leadership.”

Dogfish Head, now the 13th best-selling craft brewery in America, is competing in a different world today than when Calagione and his wife Mariah first opened a Rehoboth brewpub in 1995.

Back then, there were less than 860 craft breweries in the United States collectively producing about 5 million barrels a year. Today, more than 4,000 breweries are churning out more than 22 million barrels, according to national trade group Brewers Association.

The growing competition has meant Dogfish Head has had to continue investing in new growth opportunities.

The company, which now employs about 235 workers, recently completed a $50 million expansion at its Milton brewery. This year, the brewery is expected to produce 250,000 barrels, well short of its 600,000-barrel capacity.

Work also is slated to soon begin on a $4 million expansion of its Rehoboth Beach brew pub, while the company is rolling out vodka and gin offerings to Delaware stores this fall with distribution to other states in 2016.

Dogfish Head’s growth has mirrored an explosion in the craft beer industry.

The $19.6 billion U.S. craft beer market accounts for nearly 20 percent of the $101.5 billion U.S. beer industry.

That growth has attracted significant interest from investors, as well as the nation’s largest breweries.

Oskar Blues Brewery in Colorado, Southern Tier Brewing Co. in New York, SweetWater Brewing Co. in Georgia, Uinta Crewing Co. of Utah and other have sold part or all of their ownership stake to private equity firms in the last two years.

Anheuser Busch InBev – the world’s largest brewer – bought craft breweries Blue Point in New York and 10 Barrel Brewing Company in Oregon last year and Illinois’ Goose Island in 2011.

InBev also owns a minority stake in Old Dominion Brewing Company – which prevents the Dover brewery from selling its ales on site under Delaware law.

Calagione has agreed to a number of meetings in recent years – while turning down InBev – “to better understand the plays that other craft breweries could or would be making.”

“Our talks have always been prefaced by our steadfast desire to remain a family-controlled and family-led company,” he wrote in a letter announcing the LNK Partners deal to employees this week.

The letter claims Calagione expected his first meeting with the equity firm to be his last, but instead “walked out of the meeting thinking perhaps we should rethink those original assumptions.”

The deal crystallized, he said, after LNK agreed DogFish Head’s off-centered culture would be treasured, the company would always pursue “smart growth over fast growth” and the deal would not be a path to taking the company public.

“We contemplated whether filling our voids could be just as easily achieved through the work of a rock solid consultant,” he wrote, “but in the end, Mariah and I agreed that allowing LNK to take a modest 15 [percent] ownership position would provide the skin in the game that would align us to winning.”

Calagione said that private investment and the company’s plans for future growth would not alter his commitment to remaining an independent brewery.

“I cannot conceive of a world where Dogfish Head would be acquired by one of these large breweries,” he said. “Money is not nearly as exciting to me as the opportunity to build a world-class company … that gives back to the community where we live.”

Contact business reporter Scott Goss at (302) 324-2281, sgoss@delawareonline.com or on Twitter @ScottGossDel.