Why Sam Calagione Sold 15 Percent of Dogfish Head, and What It Means

Dogfish Head Brewery sold a 15-percent stake to LNK Partners
Dogfish Head Brewery sold a 15-percent stake to LNK Partners Getty Images

Dogfish Head Brewery announced it's selling a 15-percent ownership stake to an investment firm. To lovers of independent, authentic craft beer, the news is alarming amid the recent spate of high-profile craft brewery sales — the biggest being Heineken buying half of Lagunitas. But Dogfish Head fans don't need to worry about their off-centered ales taking a corporate turn, this deal is different.

Owner Sam Calagione says the investment firm, LNK Partners, is essentially a business consultant with skin in the game. "They will help formulate tactics to hit our goals, but we set the Dogfish Head strategy." Calagione intends to eventually buy back LNK's stake and return Dogfish Head to a wholly family-owned brewery. That 15-percent minority share also keeps Dogfish Head well within the Brewers Association's "craft brewer" definition that prohibits more than 25 percent ownership by a non-craft brewery — a number specifically set to ensure non-craft owners don't hold significant control.

A big reason for the move is that after years of growth for the craft beer world, Calagione says he sees more competitive times coming. "With international companies buying once-craft brewers, and two breweries opening every day, I think we're headed for a challenging moment." LNK has a reputation for helping brands grow (previous partnerships include Levi's, Godiva, and Gatorade), and the private equity firm says that its goal is to support companies, not run them.

"They offer great experience outside the beer world," Calagione says. "When we're planning our goals, they can say, 'here's how we did it when Levi's was competing against Guess, or when Gatorade couldn't afford advertising.'" Calagione also looked at consulting firms as an option and spoke to owners of similarly scaled businesses that had success with them, but worried that a consulting company's ultimate priority would be to maximize its own profits, not the client's. 

In addition to the guidance of LNK, Dogfish Head should receive cash for the 15 percent share. Calagione declined to talk about the details of the deal, but says nothing has changed in Dogfish Head's future plans. Those include adding a canning line to the Milton, Delaware production brewery and building a new brewpub in Rehoboth Beach, Delaware to replace the original. Dogfish Head also just fired up a new distillery.

Though Calagione wasn't touting any plans for expanded territory, like Lagunitas moving into Mexico, or Founders Brewing growing its capacity to triple output, increasing volume is often a big driver for brewers selling off ownership shares, says Eric Shepard, vice president of trade publication Beer Marketer's INSIGHTS. "Nobody wants to be the brewery that can't grow. Clearly, that's why Firestone Walker made the Duvel deal, they were growing faster than their capacity to brew."

Similarly, brewers at the top tier of craft — Dogfish Head is the 13th biggest craft brewer, Lagunitas was 6th, and Founders was 17th — may be looking to increase market share, not just volume, says Justin McLeod, CEO of Craft Brew Business Consultants. "Market share is more important in the long run because it says that customers like your product better than your competition," McLeod says. "One big advantage for a market share leader is that as consumers switch from macro beers to craft, you have a better chance to grab them."

And if the frequency of brewery deals — five in September — seems oddly high, it's because investors have only recently seen craft brewing as lucrative. Right now there's a combination of high valuation, brewers needing cash to grow, and private equity seeing profits, says Shepard. 

There's also the growing trend of brewery founders selling complete ownership to the large, international corporations Calagione now faces, but these are often fueled by different motives. "Some brewers have worked for a generation, and this is their opportunity to take money out of the business," Shepard says. This isn't a move Calagione is considering. "There's no pathway to majority [for LNK]," he says. "Our exit intentions are clear."