Blog: Vincor 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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