03 July 2017

Diageo takes a shot at George Clooney’s tequila company

Alcoholic beverages producer Diageo is acquiring Casamigos Tequila for up to USD 1,000 million as it seeks to expand further in the fast-growing tequila sector. This will add to Diageo’s portfolio of luxury tequila brands, which currently include Don Julio, DeLeon and Peligroso. The consideration covers an earn-out payment of USD 300 million based on the target’s performance over the next 10 years.

Founded in 2013 by Hollywood star George Clooney, Rande Gerber and Mike Meldman, Casamigos is a premium tequila producer based in Arizona. The company sells blanco, reposado and anejo tequilas at prices ranging from USD 20 to USD 115 per bottle. Though the founders will relinquish their stakes following the transaction, they will continue to promote Casamigos’ beverages, which are currently packaged in clear bottles with Clooney and Gerber’s signatures and the caption “Brought to you by those who drink it”.

As shown by Zephyr, the M&A database published by Bureau van Dijk, this is Diageo’s largest acquisition since it snapped up 26 per cent of Indian spirit maker United Spirits for INR 114.49 billion in 2014.

The deal’s enterprise value represents around 20 times the annual turnover of Casamigos, according to Morgan Stanley, as cited by Reuters. The news provider also quoted an undisclosed industry source as saying the acquisition is much more expensive than other transactions that target spirit makers, which typically cost only four or five times the value of sales.

Diageo has appointed Morgan Lewis & Bockius and Sullivan & Cromwell to the transaction, which will be financed with existing cash and debt. Subject to regulatory approvals, the deal is expected to close in the second half of 2017.

The transaction comes as consumption for super premium and high-end premium tequilas grew by 706.2 per cent and 292.4 per cent, respectively from 2002 to 2016, according to the Distilled Spirits Council. During the same timeframe, total gross revenue earned by super premium suppliers in the US increased by 640.7 per cent, while high-end tequila sellers in the country enjoyed a sales increase of 308.3 per cent.

Commenting on the acquisition, Diageo’s chief executive Ivan Menezes said: “It [the deal] supports our strategy to focus on the high growth super-premium and above segments of the category.” He added: “With the global strength of Diageo we expect to expand the reach of Casamigos to markets beyond the US to capitalise on the significant international potential of the brand.”

Last year, Diageo offloaded its wine assets in the US and the UK via a deal worth USD 600 million as part of plans to shed its peripheral businesses. It also successfully sold its investment holding company Udiam and its entire 50 per cent stake in Singapore-based beer distributor GAPL to Heineken for USD 781 million in 2015.

© Zephyr