The 18 Michigan investors who invested in a Florida craft rum distiller are backing a fast-growing industry that offers plenty of opportunity.
Nearly all of the investors involved in the $1.33 million investment in Key West-based Papa’s Pilar rum are from West Michigan, according to Dale Grogan, a managing director at Grand Rapids-based investment bank Charter Capital Partners LLC.
The group of investors was part of Papa’s Pilar’s equity offering that was significantly oversubscribed and drew strong attention from investors, Grogan said.
Grogan sees in craft spirits an industry that’s “following exactly the same trajectory” as craft beer nearly a decade ago with high growth rates that helped to attract investors.
“We’re very much in an upswing of this business. It’s not a difficult business to understand,” Grogan said. “There’s real interest in this space, and so if you can find that brand that has good management, coupled with good product and good distribution, then you have something really special there.”
In Papa’s Pilar, investors connected with a brand that recorded strong growth in recent years, Grogan said. The brand carries other key investment attributes, including a quality product that spins an “authentic story that is identifiable with consumers.” The brand is based on a connection to Ernest Hemingway, the late American novelist and adventurer nicknamed “Papa” and who named his boat “Pilar.”
The appeal around Papa’s Pilar’s brand “is it’s very easy to identify those people that want to see themselves as the adventurer sitting on their boat, fishing for marlin and drinking good rum,” he said.
“It’s a very easy, authentic, understandable story,” Grogan said.
The group Charter Capital Partners assembled invested in Papa’s Pilar through Charter’s Papa Fund LLC, a special purpose entity formed to make the investment. The offering was “definitely one of the fastest we’ve ever completed,” Grogan said.
The quick success of the offering resulted from pent-up demand to invest during the COVID-19 pandemic, a product with a strong name-brand appeal, and simply that “this is a fun deal,” he said.
“When I had talked to these investors, several of them — right off — said, ‘I love that brand. That’s my favorite rum,’” said Grogan, who expects craft spirits to remain a hot investment area for “quite a while.”
“There’s nothing new to supplant it. There’s not that threat and you’ll start to see some real returns,” he said. “We’re just scratching the surface in terms of where these craft distillers are going.”
Charter Capital Partners earlier this year put together a deal that raised $785,000 from 14 investors for craft spirits brands, including Papa’s Pilar.
An annual report published by the American Craft Spirits Association shows the number of craft distillers across the U.S. grew 11.5 percent in a year to 2,046 as of August 2019, the most recent period for which data are available.
The association reported craft distillers’ 2018 U.S. sales were $4.8 billion, a 27-percent increase from the year before. Market share for craft distillers as a total of the U.S. spirits industry increased to 3.9 percent in volume, from 3.2 percent a year earlier and 1.5 percent as of 2013. The American Craft Spirits Association’s 2019 Data Project added that the U.S. craft spirits market “is expected to continue to grow rapidly.”