Bottoms up

In April, a partner at turnaround specialist KPS Capital Partners, Raquel Palmer, made headlines by being named to Crain’s New York Business 40 under 40 list.

But Palmer, who joined KPS in 1997, has already made a splash in the private equity industry, her most recent handiwork being the runaway success of KPS portfolio company North American Breweries, the platform behind cult microbrew brands including Pyramid, Magic Hat (whose quirky bottle caps are pictured) and MacTarnahan's.
“18 months ago there was no ‘North American Breweries’,” Palmer says. “And today we are the seventh-largest brewer in the US”.

KPS made its debut investment in the beer and malted beverage sector in February 2009 by acquiring Genesee Brewery Company and Seagram’s Escapes. The management team at Genesee, a 154-year-old company at the time of KPS’ acquisition, had not invested in the company in many years. “Despite being strapped for cash, despite the lack of investment there was a tremendous amount of tribal knowledge in the brewery itself and they were able to really make a fantastic beer,” Palmer says.

A month later, the firm purchased Labatt USA from Anheuser-Busch/InBev. In August, KPS added on Burlington, Vermont-based Independent Breweries United. The acquisition gave KPS “strong fighters” in all seven segments of the US beer industry, says Palmer.

Under KPS ownership, Genesee Brewery’s brands experienced a 29 percent increase in sales year-on-year in a “stagnant beer market”, Palmer says, while KPS Seagram’s Escapes brand was up 14 percent in a declining market for flavoured malt beverages.

While few would have predicted the rapid growth of the business in its first year-and-a-half, especially considering the economic climate at the time of KPS’ initial investment in Genesee, Palmer says there were silver linings to the company’s distressed condition.

“We saw what was a very troubled company at the time, with not a very strong management team,” Palmer says. “But what we liked about it was that here was one of the largest independent breweries you could find in the US.”

KPS has since launched a number of new products and concepts at North American Breweries, the most successful of which is Labatt’s lime-flavoured beer, Blue Light Lime. “I actually love it,” Palmer says. “It’s great by the pool”.

North American Breweries has been growing so fast that the company has had trouble adding staff where needed, according to Palmer.

“We had to have a good old-fashioned job fair because we just couldn’t find enough people to work at the breweries”.

While deservedly proud of the success of North American Breweries, Palmer concedes that having an “affordable luxury” product certainly helps when it comes to generating returns in a downturn.

“I’d say beer is recession-resistant,” she says.