Blog: Chris Brook-CarterVincor seeing stars

Chris Brook-Carter | 5 October 2005

I was in France last week with a group of drinks journalists as news broke of Constellation’s latest  acquisition target, the Canadian-based wine company  Vincor. The response to the announcement was mixed. Elder journalists bemoaned how consolidation was robbing the  industry of its variety and character. Others commented on  how the seemingly endless number of acquisitions Constellation has embarked on merely hides how the company  is actually performing organically.
 
Both points seem debatable to me. Consolidation has robbed us of very little so far, and, given the fragmented  nature of the wine industry, the prospect of a market  dominated by only a handful of global players  controlling small but powerful portfolios, seems fanciful  at best. Indeed, in the case of Constellation’s Mondavi  acquisition last year, the process has probably saved some historical brands from a slow and painful death.
 
The second point is harder to discuss, because there may be an element of truth to it – as a result of all  Constellation’s acquisitions, the performance of its  on-going operations has been harder to judge. But there  should be no doubt about the success of that acquisition  strategy, a success that has driven significant  shareholder growth while others have struggled in this  tough climate.
 
“We know that many believe that Constellation’s focus on acquisition-based growth is meant to distract from a lack  of internal growth,” beverage analyst of Legg Mason Mark  Swartzberg wrote this week. “We think this assertion is  debatable at best, but even if it were valid, the question  would still remain: ‘Does Constellation know how to do  good deals?’ We think the facts speak for themselves.

Since late 1998, the company has completed acquisitions totaling approximately US$4bn and overwhelmingly financed  with debt. Over this period, Constellation’s market  capitalisation has gone from approximately US$900m to  approximately US$6.1billion, or up by approximately  US$5.2bn. This, to us, demonstrates not only that  Constellation has created value but also that acquisitions  have been the single biggest driver of such value.”
 
Mergers and acquisitions are far from the be-all and  end-all solution to the problems the modern drinks  industry faces – just look at Southcorp or Molson Coors –  but Constellation has demonstrated that value growth can  be achieved in this environment and this can only be a  good thing for the health of the industry and its  brands.


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