Campari upping the ante on the big boys

Campari’s acquisition this week of Carolans Irish Cream, Frangelico and Irish Mist from William Grant & Sons was intriguing for more than the simple reason the Scottish firm had only purchased the brands itself five months ago.

The fast-growing Italian group admitted following the deal that it is well-and-truly on the acquisition trail and it seems on first sight as though it certainly has plenty of cash in the attic.

Chief executive Bob Kunze-Concewitz said in the immediate aftermath of the deal: “This still leaves us with plenty of room for further acquisitions.” It’s rather a bold statement when you consider that the agreement takes Campari’s net debt to 2.5 times its EBITDA (earnings before interest, tax, depreciation and amortisation), and Kunze-Concewitz declined to reveal just how much cash would be available for further acquisitions.

However, the company’s debt is still well below the 4.25 times limit on its banking covenants and it is worth noting that it is paying just 7.5 times its 2009 EBITDA for the brands rather than the industry average of 17 times.

The group has made no less than 17 acquisitions in the last 15 years, with the 2009 purchase of Wild Turkey Kentucky bourbon for US$575 million being by far the most expensive, dwarfing the US$169m paid to William Grant for the three brands involved in this week’s deal. It is clear Campari is looking to waste little time in trying to catch up with the likes of Diageo, Pernod Ricard, Fortune Brands and Bacardi Brown-Forman.

Kunze-Concewitz said: “With Carolans, Frangelico and Irish Mist we add a high-quality and profitable business with upside potential and further enhance the group’s premium offering. In particular, we increase our critical mass in the highly-profitable US market and strengthen our exposure to a number of key international markets, including Australia, Russia, Canada, Spain and the UK.

“This acquisition represents a perfect fit in our acquisition framework, in business and financial terms. Moreover, it will benefit from low risk and easy integration, as we already account for 60% of the acquired portfolio volume and we are the global source for Frangelico.”

As for William Grant, which bought the brands as part of a US$399.4m buy-out of C&C Group’s spirits and liqueur portfolio at the back-end of April, further questions are raised over its stated commitment to Irish brands.

The company made a big thing of its “commitment” to Ireland upon purchasing the brands, but now says the offer from Campari was too “compelling” to turn down.

William Grant retains only the Tullamore Dew Irish whiskey brand from its C&C purchase following the deal with Campari and insists it is still committed to “investing in the long-term value growth” of the brand, but one has to wonder how vulnerable even that asset might be to a buy-out now the company has lost the revenue streams it hoped to generate through the three brands it has just sold off.

“Whilst Tullamore Dew was the key focus in our newly-acquired portfolio, we always intended to develop the liqueur brands,” said William Grant’s chief executive, Stella David. “However, we were offered a very attractive price from Campari and believe they will be able to develop these brands given their relevant expertise.”

True, William Grant will now be able to dedicate more time and resources to the development of Tullamore Dew, but an only-child is bound to get restless at some point.

Finance on Friday, 17.09.2010