ITALY/UK: Gruppo Campari continues down “'classic' acquisition” route with Lascelles deMercado buy - analyst
Analysts at Nomura have described the move for Lascelles deMercado as "classic" Campari
Gruppo Campari has followed its "'classic' acquisition model" in buying control of the owner of Appleton Estate and Wray & Nephew, Lascelles deMercado, according to one analyst.
Yesterday (3 September), the Italian company followed its purchase of the Wild Turkey Bourbon brand from Pernod Ricard in 2009 with the acquisition of 81.4% of Jamaica's Lascelles deMercado (LdM) from CL Financial for US$414.8m. The deal, which should complete in the final quarter of this year, equates to 15-times historical EBITDA for LdM.
In a note released earlier today, equity research firm Nomura said that Campari has performed true to form as an "active consolidator in the spirits sector".
"The ‘classic’ Campari acquisition model is to buy under-managed, ‘dusty’ brands in niche categories and without overpaying," Nomura said. "The acquisition of LdM fits this template."
Forecast synergies following closure of the deal, specifically in the distribution channel, give Campari a "meaningful opportunity to add value".
"We see own-distribution bringing greater focus on brand-building activities, stronger price/mix evolution and capture of 100% of the Appleton Estate brand’s distribution margin", the analyst firm added.
Nomura also noted that the transaction operated at "the higher end" of Campari's M&A activity. "However," it added, "(this is) low versus other international spirits acquisitions - Pernod Ricard bought Vin & Sprit in 2008 for circa 20% EBITDA multiple.
“Given our synergy expectations,” it continued, “we estimate the exit multiple on the deal to quickly reduce to an 11x multiple.”
Campari was also lauded in the note for continuing to dilute its sales presence in its troubled domestic market. "Italy’s share of group revenues has fallen materially over the past decade from 57% in 2000, to 32% in 2011," Nomura said, "given strong international development from brand building, M&A and a strengthened route to market. With the acquisition of LdM, Italy’s share of revenues falls to 27%." From a product mix perspective, the company’s pro-forma exposure to lower-margin wines and soft drinks is diluted down from 17% to 15%.
The spirits company's future M&A activity could focus on the brandy, gin, Cognac, Canadian whisky or Irish whiskey sectors, the analysts added, due to its lack of brands in these categories.
Nomura upped its target price for Campari from EUR6.60 to EUR7.00, keeping a 'buy' rating in place. Shares closed yesterday at EUR5.90.
What do Bacardi, Diageo and Pernod Ricard have in common? Aside from the obvious, Ian Buxton proffers that they share the same problem when it comes to Bourbon, and that's their lack of it....
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