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Gruppo Campari will not stop at Bisquit Dubouché et Cie Cognac - Analysis

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The drinks industry crystal ball has been predicting M&A activity in the Gruppo Campari camp for a few weeks now. 

Gruppo Campari agreed yesterday to buy Bisquit Dubouché et Cie Cognac from Distell

Gruppo Campari agreed yesterday to buy Bisquit Dubouché et Cie Cognac from Distell

And, while yesterday's announcement of the acquisition of Bisquit Dubouché et Cie Cognac from Distell sees the prediction come true, the US$62.2m deal is just the beginning. Campari is a company with more money to spend.

In fact, in a note following third-quarter and year-to-date results in November, Jefferies analyst Edward Mundy said the group had a wallet fat enough for another purchase the size of Grand Marnier - Campari bought the Cognac-based liqueur's owner, Marnier Lapostolle, last year in a transaction worth EUR684m.

Mundy's theory was backed up by Bryan Garnier analyst Virginie Roumage, who wrote in a client note today that "assuming a maximum net debt/EBITDA of 3.5x, we calculate it has firepower of EUR630m in 2018 and EUR880m in 2019".

With all that money to spend, why has Campari agreed to spend a paltry $60m on buying Bisquit? According to Roumage, South Africa is the top market for the brand, "representing 50% of sales". Meanwhile, VS accounts for the vast majority of Bisquit with "an estimated 80% of sales". 

Speaking to just-drinks this morning, Societe Generale analyst Laurence Whyatt said: "I think they bought it opportunistically. South Africa and Cognac aren't obvious markets to enter, but Campari certainly has firepower to make acquisitions. It looks like this one will be immediately accretive.

"The company has spent a lot on growing its South African capability and this acquisition helps get some scale in the country. Cognac is a high-end drink so will help any premiumisation strategy and is popular in the US, where Campari is trying to grow."

Both Roumage and Whyatt estimate that a US launch is on the cards "in due course".

"Bisquit is clearly under-invested," Whyatt continued. "Campari will have to spend time and money on the brand. However, they've got a good track record of growing brands and I would expect them to be able to do this."

So, come on then, Campari: What's next?

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