SweetWater Brewing Company, one of the top fifteen craft breweries in the USA (inside.beer, 1.4.2020), has been entered into an agreement of merger and acquisition with Aphria Inc. Aphria is a Canadian cannabis company. It is listed on the Toronto Stock Exchange and NASDAQ, and has a market capitalization of USD 1.2 billion, as of January 2020, making it one of the largest cannabis companies in the world.
Under the terms of the Agreement, SweetWater will become a wholly owned subsidiary of Aphria. The unitholders of SweetWater will receive USD 250 million in cash and approximately USD 50 million in Aphria stock at closing and are eligible to receive up to USD 66 million of additional cash under an earnout through the end of calendar year 2023. The initial transaction value represents approximately 12.5x adjusted EBITDA multiple and it is expected to close before the end of December 2020.
The terms also provide that TSG Consumer Partners, a San Francisco-based private equity company that invests exclusively in consumer product companies, will also sell its minority stake in the company which the company acquired in 2014.
SweetWater's management team will remain in place along with approximately 125 employees. Freddy Bensch who founded the company in 1997 together with Kevin McNerney will continue as Chief Executive Officer of the wholly owned subsidiary, reporting directly to Irwin D. Simon, Aphria's Chairman and Chief Executive Officer. Freddy Bensch will enter into a consulting agreement that will continue until the end of calendar 2023, subject to renewals.
The brewery has ample capacity to support distribution efforts into new geographies, with limited capital expenditure. The facility bottling and canning lines are capable of packaging 23.5 million gallons of bottles annually. The facility also has kegging capacity of 1.5 million kegs annually.
In the last 23 years since its foundation, SweetWater has established strong distribution across 27 states plus Washington, D.C. From its brewery in Atlanta, Georgia, SweetWater produces a variety of year-round and seasonal specialty craft brews, with SweetWater beverages available in approximately 29,000 off-premise retail locations ranging from independent bottle shops to national chains. SweetWater's significant on-premises business allows consumers to enjoy its varietals in more than 10,000 restaurants and bars.
In addition to its traditional distribution footprint, SweetWater 420 Extra Pale Ale and IPA are served on all Delta flights nationwide plus internationally totaling more than 50 countries across six continents which has served to extend SweetWater's brand reach on both a national and international level. The Company also hosts an annual music festival, "SweetWater 420 Fest," that has evolved into one of the largest and most anticipated music festivals in the U.S., increasing brand awareness nationwide.
In 2019, the 420 Strain G13 IPA became the top new craft brand in the U.S. in the first 12 months after its launch. In addition to branding, SweetWater's various 420 strains of craft brews use terpenes and natural hemp flavors that, when combined with select hops, emulate the flavors and aromas of popular cannabis strains, to appeal to a loyal consumer base that made the 420 Strain G13 IPA their #2 best-selling beer and #1 best-selling new craft beer in the U.S.
For the year ended December 31, 2019, SweetWater Brewing Company generated net revenue and adjusted EBITDA of USD 66.6 million and USD 22.1 million, respectively, and production volume increased 7% year-over-year to nearly 261,000 barrels (306,000 hl), twice the growth rate of the craft beer market nationally, according to the U.S. Brewers Association.
"Our strong balance sheet and access to capital have enabled us to enter the U.S. through this strategic and accretive acquisition. We will establish and grow our U.S. presence through SweetWater's robust, profitable platform of craft brewing innovation, manufacturing, marketing and distribution expertise. At the same time, we will build brand awareness for our adult-use cannabis brands, Broken Coast, Good Supply, Riff and Solei, through our participation in the growing USD 29 billion craft brew market in the U.S. ahead of potential future state or federal cannabis legalization," said Irwin D. Simon, Aphria's Chairman and Chief Executive Officer. "We look forward to building upon the strengths of each of our respective and complementary brands, diversifying our product offering, broadening our consumer reach, and enhancing loyalty with consumers."
"We are excited to welcome Freddy and the entire SweetWater team to the Aphria family," continued Simon. "As a purpose-driven company, Aphria takes great pride in leading with our core values and is committed to changing people's lives for the better by investing in our products, our people and our planet – a sentiment SweetWater completely shares with us."
In addition to acquiring a strong brand and accretive business, this strategic acquisition positions Aphria with a platform and infrastructure within the U.S., said the company in a press release. It will enable it to access the U.S. market more quickly in the event of federal legalization. The acquisition will create a larger and more diversified leading global cannabis company.
The acquisition is expected to further diversify Aphria's current net revenue mix, with the combined cannabis and distribution business representing approximately 85 percent of net revenue and the craft brewing and beverage business representing approximately 15 percent of net sales, based on the pro forma net revenue. In addition, Aphria expects the acquisition to be margin accretive with SweetWater generating adjusted EBITDA margins well in excess of 30 percent.
Aphria believes the acquisition will position it to introduce and build brand awareness of, and equity in, its existing adult-use cannabis brands Broken Coast, Good Supply, Riff and Solei in the U.S. by leveraging SweetWater Brewing Company's manufacturing and distribution infrastructure. The explosive growth of SweetWater's Strain series, launched in 2018, showcases its cultivated reputation for innovation, staying at the forefront of the industry and current with craft and consumer trends. Leveraging SweetWater's innovation knowledge and expertise, Aphria plans to introduce its brands via craft beers and other beverages as well as other non-alcoholic products as it seeks to take advantage of opportunities for both the adult-use and health and wellbeing beverage trends. The acquisition also provides the addition of key partnerships with leading U.S. distributors, retailers and on-premises customers strengthening Aphria's ability to develop new distribution in the U.S. for its products.
Similarly, Aphria will be able to enter the Canadian beverage alcohol sector to distribute and sell SweetWater's 420 brand and other beverage offerings in Canada. In addition, SweetWater's innovation pipeline includes entry into the rapidly growing hard seltzer category, which is being fueled by millennials, an important demographic.
Freddy Bensch, SweetWater's Founder and Chief Executive Officer, commented, "We are excited by the opportunity to join a leading global cannabis company and build a successful future based on the strengths we both bring to this combination. Our 420 brand offerings and SweetWater 420 Fest complement Aphria's cannabis business and create mutual opportunities for accelerated expansion into other cannabis- and beverage-related products in the U.S. and Canada. We will leverage our growing beverage offering and build an even stronger, more diversified company with a continued focus on authentic and distinctive brands using some of the freshest, most flavorful ingredients to create innovative and high quality beverages including beers, seltzers, spirits and non-alcoholic beverages that our loyal and growing consumer base has come to expect from SweetWater."