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Southern Tier Brewing taps Pennsylvania microbrewery in merger

Riding a trend that is rippling through the craft beverage industry, Southern Tier Brewing Co. has joined with a private-equity firm to acquire a popular Pennsylvania craft brewery.

Victory Brewing Co., founded near Philadelphia in 1996, has sold to Artisanal Brewing Ventures. That parent company was created by Southern Tier and Ulysses Management, a Manhattan equity firm and hedge fund manager.

The new business model is designed to help the small breweries grow without sacrificing their independence.

Artisanal Brewing Ventures is managed by former “big beer” executives who worked previously at Anheiser-Busch. Victory’s founders, like Southern Tier’s, will retain control of their brewery operations and brand, and sit on the company’s board.

Together, the two breweries will produce more than 3.5 million cases of beer per year, with the capacity to brew much more. That puts them in the top 15 craft beer companies in the industry, making them a force to be reckoned with in Northeastern markets.

The new ownership structure comes at a time when many small craft breweries, experiencing growing pains and facing stiff competition, have been gobbled up by large beverage corporations.

In recent transactions, Budweiser maker Anheuser-Busch InBev bought several popular microbreweries, including Arizona’s Four Peaks Brewing Co. and Colorado’s Breckenridge Brewery; Heineken bought a 50 percent stake in California’s Lagunitas, and Constellation Brands bought California-based Ballast Point Brewing for $1 billion.

Southern Tier’s strategy, spearheaded by founders Phin and Sara DeMink, lets the breweries avoid an outright sale while gaining new financial resources as well as some of the efficiencies and clout of a larger company.

Beer fans are split down the middle as to whether the Artisanal Brewing arrangement is good or bad for the craft brew industry. Purists say the two microbreweries have lost their street cred by letting Wall Street into the mix.

But at least one expert says it’s not a question of good or bad. The ownership shift is an inevitable necessity for the industry in general, according to Don Russell, a beer expert, beer columnist and owner of JoeSixPack.net.

“It almost has to be done for breweries this size to continue working,” he said. “They’ve grown to a pretty good size and they have to ensure that they can stay alive at that size and continue growing.”

But the financial wheeling and dealing doesn’t fit with the hands-on, mom-and-pop mythology around the craft beer industry.

“It’s a myth, but it’s the myth the industry was buit on,” Russell said. “Maybe we were kidding ourselves in the past but this is just the way it is. It’s big business.”

In a growing and changing beverage industry, the Artisanal Brewing Ventures Model attempts to walk the fine line between maintaining financial stability and selling out.

Beer drinkers are gradually accepting that these new ownership models are what is required to keep the beer flowing, Russell said. What’s most important is that product quality doesn’t suffer, and that breweries maintain their integrity and independence. That’s something this arrangement allows for, he said, at least for now.

“Both breweries have great management. They’re very well respected in the industry and I don’t think there’s any reason to think they’re going to change right now,” he said. “But they have ceded some of their control and who knows what’s going to happen way down the line.”

Southern Tier Brewing Co. opened in Lakewood in 2002. It produces One Buffalo beer with Pegula Sports and Entertainment.

email: schristmann@buffnews.com