 |
A move for Fever-Tree could cost in the region of US$3.2bn |
Following the purchase of SABMiller by Anheuser-Busch InBev last year, no drinks company can be ruled out as a takeover target, whatever its size. That includes Diageo, which has been suggested previously as potentially being in the sights of the likes of AB InBev.
Much as it didn't work for SAB, growing in size through purchases of one's own could theoretically reduce the likelihood of being taken over. Couple this approach with a healthy balance sheet, and the likelihood of Diageo adding to its recent Casamigos buy some time soon makes sound sense.
What makes for even better sense is if that purchase were for a company that makes premium mixers to go with premium spirits – such as Fever-Tree.
The UK-based company has dazzled since it went public in 2014. Not only has the group's top-line soared – jumping 73% in the 12 months of 2016 - but its share price – currently at GBP16.81 – has leaped by a staggering 890% since floating.
In a note to clients yesterday, analysts at Societe Generale described a Diageo move for Fever-Tree as being "outside the box". However, they – and we – can see plenty of appeal.
"Whilst this would diversify Diageo away from its traditional categories of alcoholic drinks," SocGen's Laurence Whyatt writes, "we think the similarity of both customers - bars and restaurants - as well as drinking occasions - Fever Tree's products are designed to have alcoholic drinks added to them - would give significant revenue synergies as Diageo can leverage its distribution network to accelerate Fever Tree's already impressive growth."
Whyatt also flags co-founder Charles Rolls' recent near-4% stake sale for US$94m. "We note that the founders have recently been selling shares," he says, "which could signal an appetite for a sale."
Then, there's Diageo's packaging tie-up for Ketel One with Fever-Tree in the US, which has since made its way over here.
With a market capitalisation of around GBP1.94bn (US$2.47bn), some would downplay the likelihood of Diageo diversifying beyond spirits into mixers. Yet, consider the latest investment opportunity from its Distil Ventures incubator fund, targeted at, among others, soft drinks producers.
Consider also that Diageo is willing to spend up to US$1bn on a 120,000-case Tequila brand. The money is clearly there.
Of course, the group could look to acquire full ownership of United Spirits in India, or even launch a round of share buybacks. But, where's the fun in that?
Get full access
