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Yucaipa taps into U.S. Craft Beers – invests in startup that will spend over $100 million to help brewers boost capacity

Ron Burkle’s Yucaipa Cos. is the latest investment firm to tap the small but fast-growing craft beer industry, taking a majority stake in a startup company that plans to spend more than $100 million to build five new breweries.

Instead of brewing its own beer, Brew Hub LLC of St. Louis, Mo. hopes to fill each facility with at least half a dozen small brewers who want to expand production but face capacity constraints. The new venture will also offer brewers other fee-based services, including distributing and marketing support.

Roughly three of four beers sold in the U.S. are brewed by two multinational giants: Belgium’s Anheuser-Busch InBev NV, BUD +0.39% which makes Budweiser and Bud Light, and MillerCoors LLC, a joint venture between the U.K.’s SABMiller SAB.LN -0.22% PLC and Denver-based Molson Coors Brewing Co. TAP +0.79% which makes Coors Light and Miller Lite.

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But most of the industry’s expansion is being fueled by hundreds of small and independent brewers, or so-called craft brewers, whose shipments have grown by a double-digit percentage three straight years as more Americans branch out from mainstream lagers.

Craft volumes surged 15% to 13.2 million barrels in 2012, compared with 1% growth for the U.S. beer industry as a whole, the Brewers Association estimated Monday. Retail sales of craft beer also topped $10 billion for the first time last year, or about one-tenth of U.S. beer sales, as the number of breweries climbed 18% to 2,403, according to the industry group.

Outside money increasingly is looking for a way in. Last year Fireman Capital Partners bought a majority stake in Utah Brewers Cooperative, maker of Squatters and Wasatch beers, while Sage Capital acquired a 60% stake in Saint Louis Brewery Inc., maker of Schlafly beer.

Equity deals still have been few and far between, though, because many craft brewers are reluctant to surrender control. Many are seeking bank loans to expand their own facilities, renting space from so-called contract brewers or joining with other small brewers to keep up with demand. Up to five million barrels in new brewing capacity are in planning stages across the country.

“We’re helping them scale but allowing them to stay in control of their destiny,” said Frank Quintero, a principal at Las Vegas-based Yucaipa.

California-born Ron Burkle’s investment arm has completed more than $30 billion in mergers and acquisitions since 1986. Yucaipa’s holdings include stakes in A&P supermarkets, cold-storage company Americold, movie studio Relativity Media and Morgans Hotel Group MHGC +3.35% .

Brew Hub plans to break ground by May on a 75,000-barrel brewery in Lakeland, Fla., a state where brewing capacity is particularly tight. Over the next five years, it plans to build at least four other breweries in other parts of the country, including Texas and a mid-Atlantic state. Tim Schoen, a former Anheuser-Busch executive, will run the company.

Jim Gorczyca, owner of O’Fallon Brewery in the St. Louis area, says he’s weighing whether to build a new brewery or partner with a company such as Brew Hub after shipments at his brewery soared 21% last year to 10,500 barrels. He’d also like to expand into more states.

“Brew Hub becomes a solution outside your home market,” said Mr. Gorczyca, whose brewery’s top-selling beers include O’Fallon 5-Day IPA and O’Fallon Wheach, a peach-flavored wheat beer.

Source: Wall Street Journal