Speculation that Campari Group might be about to splash out on ‘transformational’ M&A is nothing new; the topic has been kicked around for well over three years now. And, to be honest, we’re only a little bit closer to pinpointing what the company will do next.

The issue has resurfaced over the past couple of weeks thanks to a change in the group’s voting structure. Without getting bogged down in the detail, the shift increases the voting rights of lead shareholder Lagfin (owned by the Garavoglia family) from 68.6% to 84%.

That opens up the possibility that the company could issue a large amount of equity without sacrificing family control – giving it a potential ‘war chest’ of up to €30bn ($32.5bn) to fund acquisitions.

The move prompted Deutsche Bank to issue a note analysing Campari Group’s M&A options: what magnitude of transaction might result, what kind of business might be involved, and – the nub of the matter – precisely which companies are on CEO Bob Kunze-Concewitz’s radar.

According to the note, the key attributes of any target would be solid presences in the US and Asia, both regions where Campari Group is underweight (Asia especially). In the US, where the company already has some scale, synergies would also be beneficial.

Even in today’s world, €30bn goes a long way, but the Deutsche Bank analysts reckon that only three out of the world’s top 50 spirits companies fit the bill for Campari Group: Edrington, Rémy Cointreau and William Grant & Sons. (The bank’s nine criteria include an enterprise value of $5.5-30bn, plus sourcing at least 30% of revenues from premium-plus products.)

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There’s also a ‘second division’ of businesses that fulfil most of the criteria, including Jose Cuervo owner Becle/Proximo Spirits, Moët Hennessy and Brown-Forman. While each of the businesses has its obvious attractions, most also have significant hurdles to overcome.

At this point, it’s worth turning the clock back to July 2020, when Campari Group moved its registered office from Italy to the Netherlands, where the local regulations allow the kind of changes in voting structure that have come to pass this year.

The significance of the move wasn’t lost on industry observers at the time.

A month before the Netherlands move, Bernstein analyst Trevor Stirling issued a note very similar to the more recent deep dive by Deutsche Bank, but with different conclusions.

Stirling ruled out the top 13 spirits companies either because of their size, or because of their entrenched family control. Of Deutsche Bank’s top trio, that logic ruled out William Grant & Sons at the time.

As for Edrington, Stirling highlighted the fact the company is owned by a charity (the Robertson Trust) and argued that, even if the trust was open to a deal, both Suntory (10% stake in Edrington; 25% of Macallan) and William Grant & Sons (30% stake in Edrington operating entity The 1887 Company) were better-positioned to close it.

Of Deutsche Bank’s ‘second division’ picks, Stirling ruled out Brown-Forman and Moët Hennessy because of size/willingness to sell, leaving Rémy Cointreau and Becle/Proximo as the strongest overall candidates.

More than three years later, has Stirling changed his mind about any of this? Broadly speaking, no. “The amount of equity that the family can issue has gone up enormously,” he says. “But, even if that equity meant that they could buy something several times bigger [than Campari Group], they would probably not want to do that as it would dilute the culture.”

And what about the potential takeover targets? Stirling still rules out Brown-Forman, arguing that the company is “too big, plus the Brown family has no apparent interest in selling”.

Rémy, by contrast, “fits like a glove”, he says (luxury brands, strength in Asia and the US). But – and it’s a big but – “it’s very difficult for me to believe that the families [Hériard-Dubreuil and Cointreau] would want to be minority partners under Campari”.

Becle/Proximo remains obviously attractive for its US and agave attributes – and the Beckmann family were reputedly close to selling to long-time partners Diageo back in 2012 – but Stirling wonders if now is the right time for a deal, just as agave prices are falling, bringing an imminent and considerable margin boost.

Events over the past two or three years might – just might – have changed the rationale for William Grant, with CEO Simon Hunt departing in October 2020 and no sign of a permanent replacement. Might this create a scenario where enough family members could be persuaded to sell and take on the role of minority shareholders?

Such speculation may shorten the list of potential takeover targets, but it’s hard to reach any firm conclusions, beyond tentatively identifying Becle/Proximo as the most likely candidate, followed by Rémy Cointreau and William Grant. As Stirling says: “There’s no clear and obvious favourite.”

Then again, do Campari Group and Kunze-Concewitz want or need to conduct such a transformational piece of M&A? The company’s strategy over recent years has focused on bolt-ons of varying magnitudes, from larger deals (Wild Turkey, Appleton/Wray & Nephew, Grand Marnier) to smaller acquisitions (Bisquit, Averna, Wilderness Trail).

Ironically, this apparent diversification of the business has been accompanied by a relative polarisation in terms of revenue sources. In fiscal 2014, Aperol accounted for less than 10% of Campari Group global sales, with Campari at 10% (and Skyy vodka lead brand at 10.1%). By fiscal 2022, Aperol’s revenue share had leapt to 21.6%, with Campari at 10.6% (ahead of Wild Turkey at 8%, with Skyy having dropped to 5.1%).

It’s superficially surprising that a company that has spent so much money on acquiring and creating a more varied portfolio of brands should remain so reliant on two quintessentially Italian ‘legacy’ names (although Campari Group has only owned Aperol since 2003).

Does this strengthen the argument for a larger, ‘transformational’ deal? Not necessarily. The revenue shift is a consequence of the rapid and remarkable growth of Aperol in particular and Campari to a lesser extent. “They’re victims of their own success,” as Stirling puts it.

It also depends on which measure you use to assess the group’s recent performance. Stirling points out that, in fiscal 2022, one-third of revenue growth came from Aperol, one-third from a combination of Campari, Wild Turkey, Espolón and the Jamaican rums, and one-third from the company’s smaller brands, such as Crodino and Glen Grant.

The only firm conclusion I can draw from all of this is that Campari Group is well-placed to explore a number of future M&A options, from a ‘transformational’ merger with a company of similar size, such as Becle/Proximo, Rémy or William Grant, to a succession of smaller, but still significant, brand acquisitions.

I’m not entirely convinced that money is burning a proverbial hole in Campari Group’s sizeable pockets, but watching how this intriguing company evolves over the next few years should make for fascinating viewing. Buckle up…