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Five reasons why Constellation Brands' move for Meiomi will work - Analysis

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Alongside the release of its first quarter results yesterday, in which beer was once again the big winner, Constellation Brands announced its intention to buy California wine brand Meiomi for approximately US$315m.

Constellation Brands makes a move on Californian Pinot Meiomi

Constellation Brands makes a move on Californian Pinot Meiomi

Some might find it an odd move for a company that has seen stagnant growth in its wine business in recent times. Here are five reasons why just-drinks believes the purchase is a healthy move.

1. Constellation is streamlining its wine focus

Cowen analyst Vivien Azer said in a note following the conference call: "We were pleased to see that the company is taking an increasingly concentrated view of their wine portfolio, having adjusted their stated focus brands down to 15, from 20."

2. Meiomi is a successful brand

According to Constellation's president & CEO, Rob Sands, Meiomi went from selling 60,000 cases in 2010, to become "a nearly 600,000-case brand" and "has experienced dollar sales growth of more than 50% over the last 52 weeks".

In fact, in 2014, Meiomi generated in the region US$65m in net sales, according to Constellation. The brand retails in the $20-plus bracket.

3. The company is paying a reasonable price

Stifel analyst Mark D Swartzberg called the acquisition a "reasonably-priced transaction". Stifel's model includes an estimated P&L for Meiomi, based on its disclosed case volume, revenue, and purchase multiple of 10x EBITDA.

"We use 10.5x in estimating accretion because we understand Sands’s reference to 10x is a reference to an amount in the 10x-11x range.

"We consider this a sound multiple."

4. Constellation has done it before

In 2012, Constellation purchased another Californian Pinot Noir, Mark West. The group paid around US$160m for the brand.

CEO Sands said: "Meiomi can be efficiently integrated into our distribution platform to provide synergies, scale and route-to-market benefits and it is very similar to our successful Mark West acquisition."

Like the Mark West acquisition, Meiomi only includes the brand and existing inventory.

Swartzberg adds: "Meiomi sources grapes primarily from others and does so on a multi-region basis, allowing it to minimise and control input costs."

5. The group has the infrastructure to grow the brand

Constellation's existing footprint in the wine world - and in the Pinot Noir segment - means growth should come relatively quickly.

"We also expect Constellation to accelerate growth because of its national footprint and distributor relationships," says Swartzberg.


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