SAM Boston Beer Company Inc

Anheuser-Busch InBev NV is bringing its alcohol expertise to the carbonated-water category with the acquisition of SpikedSeltzer creator Boathouse Beverage LLC.

Financial terms of the deal announced Friday weren't available.

SpikedSeltzer is made from fermented sugar that creates a carbonated-water beverage with 6% alcohol by volume. It comes in flavors like Valencia Orange, Cape Cod Cranberry and Indian River Grapefruit.

The acquisition highlights the pressure on AB InBev and other brewers to expand beyond beer, which has been losing share of the total U.S. alcohol market to liquor and wine over the past 15 years. The erosion has led market-leader AB InBev and MillerCoors, the No. 2 brewer in the U.S. by volume, to create an array of hybrid brews like Bud Light Lime-A-Rita and Redd's Apple Ale, which are made like beer but flavored to taste like a cocktail.

The expansion has sparked the creation of alcoholic sodas and spawned brands like Not Your Father's Root Beer and Henry's Hard Soda, which comes in ginger-ale and orange-soda varieties.

Retail sales of flavored malt beverages last year topped $2.04 billion, up 21% from $1.68 billion in 2012, according to market research firm IRI. The beer category had $33.34 billion in sales last year.

Flavored malt beverages also appeal to brewers because they command a higher price. A case of flavored malt beverages cost $34.30 as of Aug. 7, 50% more than the $22.88 a case of beer commanded, according to IRI.

Boathouse Beverage has helped expand the category. It began making alcoholic, carbonated-water beverages in 2013 and has increased sales to more than 36,000 barrels from 5 gallons.

Its success attracted other brewers. Mark Anthony Group Inc., which makes Mike's Hard Lemonade, this year launched White Claw Hard Seltzer, and Boston Beer Co., which makes Samuel Adams Boston Lager, launched Truly Spiked & Sparkling.

"Everyone looks at this as a new hot category," said Townsend Ziebold, a managing partner at First Beverage Group, which advised SpikedSeltzer on the deal. "It's gluten free, low in carbs, and it's a versatile drink."

AB InBev plans to expand SpikedSeltzer sales by plugging the brand into its national network of 500-plus distributors. Currently, SpikedSeltzer is only available in 14 states, and Northeastern states like Connecticut and Massachusetts account for a significant portion of sales.

Boathouse and AB InBev said the deal allows SpikedSeltzer to expand its capacity so that it can meet current demand. Production will shift from Boathouse Beverage's current producers, North American Breweries and Blues City Brewery, to AB InBev's Baldwinsville, N.Y., brewery.

The deal is the first craft acquisition by AB InBev since it reached an agreement with the Justice Department last month. Under that agreement, AB InBev needs Justice Department approval for the acquisition of any brewers that generate at least $7.5 million in annual gross revenue, but a person familiar with the deal said that SpikedSeltzer fell below that threshold.

AB InBev has acquired eight craft brewers since 2011 when it bought Chicago-based Goose Island for $38.8 million.

Write to Tripp Mickle at Tripp.Mickle@wsj.com

(END) Dow Jones Newswires

September 09, 2016 17:45 ET (21:45 GMT)

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