CHAMP acquired the Constellation Brands assets late last year

CHAMP acquired the Constellation Brands assets late last year

Late last year, Constellation Brands sold off a wealth of non-US operations to Australia-based private equity group, CHAMP. Earlier this week, just-drinks managed to grab some time with the company's managing director, John Haddock to ask him what CHAMP bought, why, and what it's going to do next.

just-drinks: What have you actually bought?

John Haddock: It's primarily the Australian and UK operations of Constellation Wines. With that comes a mainland European distribution presence, as well as a presence in Japan and South Africa, where there's a winery and some distribution. It's not Constellation's New Zealand business, but it's pretty much all of the off-shore operations of Constellation Wines.

j-d: Is it fair to say that the Australian operations were the main draw for CHAMP?

JH: The Australian business is obviously helpful, as it relates to our physical presence down there. But, we've bought a business with significant off-shore operations and we're aware of that. This investment will only be a good investment if the whole business is successful, not just the Australian side.

j-d: What experience has CHAMP had in wine, or in beverages more generally?

JH: CHAMP is a generalist investor, like pretty much all of the private equity firms coming out of Australia. We do have reasonable food and beverage experience: We currently own one of the largest distributors and independent brand owners in the country, called Manassen Foods; we previously owned one of Australia's largest malt manufacturers, called United Malt Holdings, which also had operations in the UK, the US and Canada; prior to that, about eight or nine years ago, we used to own a wine business called CuppaCup Vineyards, which had operations in both Australia and France. It was ultimately bought by SouthCorp, which is now owned by Foster's. So, we've had direct experience in the wine sector, and we have broader experience in the FMCG sector.

j-d: Has CHAMP got experience of a wine industry in the condition that Australia's finds itself in today?

JH: Probably not too many people have got experience of a wine industry in its current condition! As you know, there have been more people exiting than entering. The conditions are obviously challenging at the moment, but that did form part of our due diligence. We do believe that, over time, conditions in the industry can, and should, improve. We've also got a fair bit of improvement to do in our own business, so it's a mixture of both factors.

j-d: How big a concern is the current condition?

John Haddock

CHAMP's managing director, John Haddock

JH: Look, it's not helpful. But, there are things that are in your control and there are things that aren't. We've done our due diligence, and we'd like to think that the wine glut globally – and specifically in Australia – will hopefully continue to work its way through. But, these things don't change overnight: I can see another 18 to 24 months of challenging conditions ahead for the wine sector. We're in this for the long haul, though. We know it could take a bit of time for the industry to improve, and for Accolade to improve its performance as well. But, that's a basis for the investment we've made. We're not here for short-term or easy gains. We want to build the fundamental value of this business.

j-d: Constellation had attempted in the past to focus more on premiumisation – is this an area you intend to revisit?

JH: The bulk of the Accolade portfolio operates more in the mainstream segment. The business has some good premium brands and we'll make sure that that opportunity is maximised. But, we're comfortable with where the business is focused, and we'll look to be a strong performer in that sector as opposed to pushing any large premiumisation strategy.

j-d: Could you have bought more of Constellation than you did?

JH: Constellation was disposing of assets it considered were non-core. I think that it considers its other operations to be core to its business. So, it was never part of the transaction that other parts of Constellation would be acquired. From our perspective, we're very happy with the assets we've acquired, and Constellation retained some very good assets itself. I think that both sides are happy.

j-d: What is CHAMP going to do differently with its assets to what Constellation did?

JH: I think the business has a lot of good assets, in the form of brands, production facilities, distribution networks and in its people. I think a lot of improvement can come from just refocussing on this business and its core operations, and trying to get the most out of it. We have some good market positions and good brands: The business probably needs to reinvest in the branded side. The assets are in very good condition – Constellation did a good job there. We'll be able to put more time, effort and money behind those assets to redevelop them and grow them further.

j-d: The common belief is that PLCs tend to struggle with wine, which doesn't work to a quarterly time-frame. Where does private equity ownership sit in this theory?

JH: I think we provide the right type of owner for this type of business. We don't have the quarter-to-quarter pressures that listed companies do. We're also in a position - over a three-, five- or seven-year time horizon – to put a fair bit of early effort into the business to reinvigorate it. We can do that in a private context and that makes it easier to focus on the business and not have to manage external shareholders in the way a public company has to.

j-d: But, private equity tends to operate on a build-up then break-up template.

JH: We're looking to build and grow the business rather than break it up. That's our focus. I think we can have success through growing and developing this business.

j-d: What about the Matthew Clark stake? Surely, that's non-core to you?

JH: We're not coming into this investment believing that Matthew Clark is a non-core asset. We're still getting our heads and arms around the business and making sure we're providing the correct long-term strategy.

j-d: The UK wine market – why bother?

JH: I think the UK is challenging and will continue to be. But, there are some things that the company is working on that can hopefully bring some long-term value to both ourselves and to UK retailers and consumers. We're committed to working positively with the industry to see what can be done for mutual benefit. Maybe that will be a success, maybe it won't. We acknowledge the strong presence the retailers have in this market, but we believe that a fair proposition can be provided for both sides.

j-d: What message do you have for Accolade's employees?

JH: We've been going round visiting most of our employees since we acquired the business and we've been giving a very consistent message: We're very proud to own Accolade and we're committed to helping it grow.