Analysis - M&A landscape still looking good in spirits
Will Campari, Diageo, Pernod Ricard and Remy Cointreau splash their cash in the months ahead?
Campari, Diageo, Pernod Ricard and Remy Cointreau are all well-placed to play parts in the M&A arena, although Pernod and Remy may be the quieter speculators going forward.
With all four companies set to announce their latest quarterly results in the coming weeks, Nomura has this week issued notes on all of them. Turning to the likelihood of mergers and acquisitions, the analyst considered the probability of activity from the four in the short- to medium-term.
On Campari, Nomura said it feels that the Italian firm is well-placed for smaller purchases going forward. “With debt covenants at 3.5x net debt to EBITDA,” Nomura said, “we estimate the company has fire-power of circa EUR400m (US$542m) to EUR450m for bolt-on deals.” Campari has been one of the busier M&A players in recent years, acquiring Lascelles deMercado & Co from CL Financial last year, Sagatiba from Marcos de Moraes in 2011 and Wild Turkey from Pernod in 2009.
Diageo's M&A opportunity, meanwhile, is “still there”, Nomura said today (10 October). “We believe Diageo’s strong balance sheet offers scope for further M&A activities, especially in local spirits.” Diageo has focused its M&A efforts of late on domestic spirits producers in emerging markets, including ShuiJingFang in China, Mey Icki in Turkey, Ypioca in Brazil and India's United Spirits.
Nomura also suggested that a move for the 65% of LVMH's Moet Hennessy drinks division that Diageo does not own still holds potential in the longer term.
Remy Cointreau, on the other hand, may struggle to find anything suitable to purchase in the near future, claimed Nomura. “We believe the company has material firepower (EUR800m to EUR1bn) to do further deals,” the analyst said.
“However, it has ruled out a further Scotch deal for now (after buying Bruichladdich last year), and has fairly narrow criteria for future acquisitions (must be high value), which may make it difficult to achieve.”
Rather, Nomura suggested, Remy Cointreau may make use of its authority to embark on a share buyback programme, up to EUR150 per share.
Finally, Pernod Ricard seems comfortable to wait until it has installed its new CEO before venturing back into M&A, said Nomura. “With Alexandre Ricard not due to take over as chairman and CEO until January 2015,” the analyst said, “we continue to see a hiatus period, with no major M&A moves likely.” Pernod has targetted reducing debt over M&A, but ventured back into the arena with the purchase of Cognac producer Le Maine au Bois earlier this year.
Remy Cointreau will report its half-year sales on 17 October, the same day that Diageo posts its Q1 trading statement. Pernod's Q1 sales will be announced on 24 October, while Campari will release its Q3 and nine month year-to-date numbers on 14 November.
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