ASHEVILLE, N.C. — Brian Mulvaney may have one of the best jobs in banking.
Mulvaney, as head of beverage finance at Bank of America, manages a diverse business segment. But he is becoming well known on the fast-growing brewing scene as the "beer banker" because of B of A's efforts to move downstream from global conglomerates such as Anheuser-Busch InBev, MillerCoors and Heineken to do more business with craft breweries.
Banking and brewing are similar; the market is largely controlled by a handful of big companies, Though smaller operations and upstarts are eager to cut into their turf. While the number of banks is shrinking, craft brewing is exploding, with the total amount of operators increasing by 14% last year, to more than 4,000 microbreweries and brewpubs nationwide.
Such rapid growth has raised concerns of a bubble (no pun intended) and has prompted a number of high-profile breweries to sell themselves to global giants. It has also created business opportunities for Bank of America and other banks.
Mulvaney, who recently started home brewing and has a beer he calls Overdraft, has been logging serious miles talking with brewers about the opportunities and pitfalls ahead, including a recent series of panel discussions held at Highland Brewing. While sharing a pint, Mulvaney shared his thoughts on the craft beer industry, its burgeoning trends and how banks can properly vet brewers in need of credit.
Here is an edited transcript.
What are your thoughts on the state of craft brewing?
BRIAN MULVANEY: In general, the bank's view is that obviously there's been some tremendous growth, particularly over the last five years. We still see continued growth for the craft sector. What's changing is what defines craft. We've seen a number of acquisitions where some of the leading independent craft brewers are now part of the larger global brewers. We're going to be seeing different numbers in the stats that are coming out in terms of growth rates.
I still believe that there is going to be continued growth in craft-style beer from the perspective of consumers. The question is who will be among the stronger brewers. Who is really going to achieve the market share for that growth. That is what's playing out right now.
There's a lot of talk about rapid growth. Is a bubble forming?
There are three different areas where there is the potential for bubbles. One would involve capacity and the supply v. demand issue. With the continued increase in demand from younger, legal-age drinkers looking for that craft-style, stronger style — there will be continued demand for that. There is not too much brewing capacity in the craft brewing sector for that. There might be in the premium sector, or the light lager sector. There doesn't appear to be an oversupply of capacity in the craft beer sector.
That's on a macro level. There may be situations where there could be overcapacity issues on a micro level, or per brewer. We've seen a number of brewers try to double or triple the size of their production capacity by adding a new brewery or adding a new brewhouse. To me, there is where you have a potential risk as those brewers dramatically increase their fixed costs ahead of [production].
What does the typical brewery client for Bank of America look like?
For most banks, in order to be a borrower you need to be making money and have cash flow so you can service that debt. That's really one of the criteria. Remember more than 3,000 breweries have launched in recent years, many of which are still not making any money. As you get to profitability, that's when we can start working with you.
What about the investment banking side?
We have worked for a very long time with the global brewers such as AB-InBev, MillerCoors, Heineken and others. As far as the craft sector, we are now getting more inquiries from brewers asking us to assist them with their strategic alternatives — whether they want to sell themselves or raise some equity.
We've seen enough of a life cycle with some breweries that might be thinking of selling.
That's correct and more and more so. I think this year, and into 2017, we're going to be seeing more transactions.
How do you underwrite for a craft brewery?
Certainly, like other investors and lenders, we're looking at the management team. Who are the people behind it? In the craft beer space, we'll also look at their brand positioning. Are they a strong local brand? Do they have room to grow? Where is that growth coming from? Who are they affiliated with, in terms of distributors, retail accounts or other investors?
Are there any particular styles of beer that you feel are well positioned?
IPA has been the workhorse of the craft sector. That's where we see the bulk of the volume. But we're also seeing some breweries really start to focus on barrel-aged products and more sour beers. So we're starting to see those other styles emerge. What's interesting about those products is that they carry a much higher price point and margins. Brewers may have to sit on them for six months to a year, but the returns on that seem to be pretty good. I think that will be a category that continues to grow.
You can judge that by the lines that form before certain releases.
And how the brewers allocate it out. The classic is the Pliney the Younger. You can only get it by waiting in line.
Are there any particular beer styles that you prefer?
I do enjoy the barrel-aged, particularly the bourbon barrel-aged stouts. That's become one of my favorites.
I also understand that you've been brewing.
I have started home brewing. I'm on my third batch, so we'll see. I still have some work to do, but it has been a lot of fun.
What else can you share that will give people a better view of the industry?
One of the things I've been talking to craft brewers about involves really understanding who they want to be and what their business strategy is. There are a lot of breweries starting up, and there's a lot of competition. It is not the same as it was 10 or 20 years ago when some of the leading craft brewers started. So having owners understand their business strategies is [important], whether it is a one-unit brewpub or becoming a large regional production brewery. That determines their capital needs and where that capital comes from.