Raise a Glass to Dynamic M&A Activity

The next time you’re enjoying your favorite adult beverage with family or friends, consider a toast to an unheralded but important spigot of innovation and competition: a robust market for mergers and acquisitions.

Even as the Biden Administration continues its effort to crush merger and acquisition (M&A) activity via draft merger guidelines that break from decades of precedent, a draft reporting form that would more than quadruple the costs of filing a merger, and overly aggressive lawsuits that have little basis in economics, the facts tell a different story. In industry after industry, from agriculture to biopharmaceuticals to tech, the economy is becoming less concentrated, more competitive, and more innovative, often spurred along by M&A activity that provides smaller companies with indispensable capital, expertise, and distribution opportunities.

M&A’s Role in Industry Innovation

Take the alcohol industry, which fits this pattern as well as Norm Peterson fit a bar stool at Cheers. In 2021, the White House issued an Executive Order on Competition that requires agencies to examine the competitive landscape in many markets, including alcohol. The Order rests on the premise that “over the last several decades, as industries have consolidated, competition has weakened in too many markets.”  The Tax and Trade Bureau followed up with an Advanced Notice of Proposed Rulemaking regarding competition in the beer, wine, and spirits industry that, as with many other of this administration’s competition initiatives, exceed the agency’s statutory authority and could discourage competition.

If only our beloved postman Cliff Clavin was around to point out the facts. Competition in alcohol markets is thriving. Today, the beer industry has five times the number of microbreweries and brewpubs/taprooms as a decade ago.  During the past two decades, economic concentration has decreased significantly, as the U.S. market share of the largest four brewers dropped by 22.2% from 2002 to 2017.  Smaller players have more shelf space than ever; “‘independent craft beers’ shelf space in grocery stores is greater (by a relative 40%) than their overall market share, meaning independent craft beers are overrepresented in most stores.”

As in other industries, mergers and acquisitions have spread technical expertise and capital to smaller companies and startups. For instance, after reacquiring a small brewery from a national company, the brewery’s founders explained that they would “take what we learned … and apply it to our future business and best practices. With the right structure paired with our passion for our local market, we feel it’s a recipe for success.” 

M&A Supports Small Business

Other small companies have noted that M&A promotes innovation, employment, and risk allocation. In another instance where a small brewer’s founders reacquired their company, the founders explained that “being owned by one of the largest beer producers in the world for about five years helped the company grow and afforded their employees health benefits and 401(k)s, which were not available when [our company] was an independent brand. ‘It should not be missed that it would have been very scary times to be an independent brewer during the pandemic.’”  In fact, contrary to the administration’s concentration narrative, in recent years the trend has been not of large brewers acquiring smaller brewers, but rather the reverse, of large brewers selling smaller brewers.

In alcohol, as in other industries, dynamic merger and acquisition activity helps companies large and small alike to innovate, to distribute risk and capital, and to distribute popular products far and wide. Before imposing costly new regulations, the Biden Administration should get its facts straight.

About the authors

Sean Heather

Sean Heather is Senior Vice President for International Regulatory Affairs and Antitrust.

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