Stock Spirits set for stock market floatation

The list of drinks groups quoted on the London Stock market is being augmented later this month. Stock Spirits, which is majority owned by the US private equity group Oaktree Capital Management, is offering to sell shares at between 210p and 260p, which will value the company at up to £520m. That is below initial market estimates of a valuation of up to £600m.

Oaktree is not selling its entire holding via the London listing, saying that the sale will account for a maximum of 55% of Stock’s equity, including the disposal of shares by senior managers. After the float, which will take place on 21 October, Oaktree and its investors will remain the largest single shareholder in the group.

Stock is the largest producer of vodka in Poland, the Czech Republic and Italy, which account for about 90% of the group’s sales. Some 60% of its sales are in Poland. In addition, Stock recently announced that it is becoming the Polish distributor of Beam’s global brands.

Earlier this month, chief executive Christopher Heath is reported to have told a news agency that the company would use much of the proceeds of a flotation to repay debt, leaving it poised for expansion. “The main reason we’re IPOing is to get our balance sheet in shape so we can fund meaningful acquisitions,” he said.

The company will seek to expand through brand extensions and takeovers in countries between Poland and Russia, including Hungary, Latvia and Ukraine, he said. “We’ll acquire businesses with strong, well-recognized brands,” adding that there has been little consolidation among smaller companies in central and eastern Europe.

Heath said there were opportunities for expansion in Central and Eastern Europe, including in Ukraine, Serbia and Bulgaria. Spirits consumption in the countries in the region where the firm is not yet active was equivalent to 38 billion shots in 2012.

“There is a huge market out there that is, at the moment, dominated by domestic producers, so there is a massive opportunity for us to go out there and acquire some of those businesses,” Heath is reported as saying. He added that the typical deal size in the region was between €30m and €60m.

Smaller deals could be paid for from the company’s cash flow, while larger deals would be initially funded by debt, he added.

Heath said in the countries Stock is targeting three to four domestic producers typically had combined market shares of between 50% and 70%, with global giants such as Diageo and Pernod Ricard holding less than 20%.

Even so, finding such deals will not be easy as the global players themselves are eagerly seeking niche acquisitions which bring with them not only a solid local brand, but more importantly an enhanced route to market for their premium spirits such as scotch.

Stock has had a chequered history under Oaktree’s ownership. The company was formed when Oaktree merged the Czech business Stock with its Polish counterpart Polmos Lublin, which it had bought a year earlier. That brought brands such as high-end Polish vodka Czysta de Luxe to fruit-flavoured liqueurs and Spanish brandies under a single roof. But within months, the hoped-for economies of scale combined with swelling sales was thwarted by the global downturn.

As a result, Oaktree looked at selling Stock in 2001. Rumours abounded of a possible deal with Bain Capital, a rival US investment group, and Diageo, but both are thought to have walked away because of the high asking price. Oaktree later considered a float on the Warsaw stock market, but again that came to nothing.

Stock’s turnover for the first half of 2013 was €153.1m, an increase of almost 14% from the €134.4m achieved in the comparable half of 2012. Core earnings for the same period were €34.3m compared to €28.5m. Based on those figures, Stock is being offered at a lower earnings multiple to the leading global spirits groups.