Spirits rise as Diageo makes £300m deal
DRINKS group Diageo is toasting the £300m acquisition of one of the producers of Brazil’s most popular spirit, cachaça.
The maker of Guinness and Smirnoff has agreed to buy Ypióca from its family owners as it continues to grow its emerging markets businesses to offset weak demand in Europe.
The celebrations for another, larger deal, remain on ice, however, as the group continues its efforts to take a stake in Jose Cuervo, the world’s leading tequila brand which is valued at $3bn (£1.91bn). It has held talks but offered no update on its progress yesterday.
The purchase of Ypióca, from the family-owned Ypioca Agroindustrial group, gives Diageo the third-biggest player in the market for cachaça, a spirit made from fermented sugar cane also known as Brazilian rum, as well as a cachaça distillery, a bottling plant and a warehouse.
It is likely to benefit from a rise in drinks consumption when the Brazil hosts the football World Cup in 2014 and the Olympics two years later.
“Brazil is an attractive, fast growing market for Diageo with favourable demographics and increasing disposable incomes. The acquisition of Ypióca gives us the leading premium brand in the largest local spirits category,” said Diageo chief executive Paul Walsh.
Ypióca, whose origins go back more than 160 years, had net sales of R$177m (£57m) last year.
“We view this style of bolt-on emerging market deal positively, offering local premium brand leadership as well as distribution synergies over the mid-term for Diageo’s international spirits,” said UBS analyst Melissa Earlam.
She calculated that Diageo paid a multiple of around 19 times earnings before interest, tax, depreciation and amortisation for the business.
Morgan Stanley advised Diageo on the purchase, which is due to complete in a month. Diageo’s shares closed down 0.03 per cent at £15.30.
TIMELINE | THIRST FOR GROWTH: DIAGEO’S EMERGING MARKETS DEALS
October 2010
Reported to be interested in bid to buy the 66 per cent of Moet Hennessy it does not already own from LVMH.
January 2011
Agrees to pay about £33m for a 23.6 per cent stake in the Hanoi Liquor Joint Stock Company, known as Halico, and Vietnam’s leading spirits producer.
February 2011
Chief executive Paul Walsh tells the City that “bolt-on acquisitions or acquisitions in the developing world are very important to us”.
February 2011
Later that month Diageo confirms a deal to buy the Turkish spirits group Mey Içki, Turkey’s leading maker of raki, for £1.3bn.
May 2011
Enters talks to buy tequila brand Jose Cuervo. It has the first option to buy Cuervo because it has international distribution rights for the brand.
June 2011
Wins backing from Chinese regulators to buy baijiu brand Shui Jing Fang.
May 2012
Posts a six per cent first-quarter sales rise with fast-growing emerging markets and a recovery in North America offsetting falling sales in Europe.
May 2012
Agrees to pay £300m for Ypióca, one of the producers of Brazil’s most popular spirit, from its family owners.