Glenboden M & A Originations

Campari acquisition of X-Rated vodka underlines its creative valuation approach for early –stage assets

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Origination Status acquisition agreement announced, July 2007;
Asset brand and trade of X-Rated (USA), super premium vodka and cocktail brand;
Buyer Skyy Spirits LLC, 100% subsidiary of Gruppo Campari (Italy);
Seller Jean-Marc Daucourt and Todd Martin, owners of X-Rated;
Buyer Rationale expansion of super premium brand portfolio in US market;
Seller Rationale having strategic partner to globalise X-Rated, upside potential;
NBs price adjustment to be based on next three years’ sales volumes.
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This deal follows hot on the heels of Campari’s acquisition of Cabo Waco tequila, with which it has a number of similarities. It also enriches the palette of comparisons with spirits acquisitions made by other majors, in particular Contellation brands (Svedka) and now also Diageo (Nuvo). In general, it seems that Campari’s acquisition pattern is much more about value for money, than that of the other (public) groups.

Like Cabo Waco before it, X-Rated is very up-market and niche in scale, with both brands selling only 70.000 cases in 2006. It also includes a big dose of authenticity, being imported from France and including some rarified ingredients (X-Rated Fusion Liqueur uses blood oranges from Provence, X-Rated Ultra premium Vodka has a touch of roseberry grain etc).

That however is as far as the authenticity parallels go, for while Cabo Wabo was created 10 years ago by a ‘living the life’ rock star, with the help of a Mexican family distiller of generations, X-Rated was set up only three years ago, by a posh spirits designer and an ex- senior executive from Allied Domeq, making it a bit closer to Svedka in terms of its ‘heritage and provenance’ (or lack thereof).

The youth of X-Rated, as well as the recipe of its cocktail offering, also suggest similarities with Diageo’s acquisition of Nuvo. Both brands are focused on upscale female drinkers, and are heavy on design.

Both could also be seen as very early stage businesses, created by serial entrepreneurs wise enough to bring in a big strategic investor as soon as possible - really at ‘venture capital’ stage.

Curious also that all the interesting spirits deals seem to be happening in the US, right now. Is that the only country where young people are attracted to new brands?

Finally, the valuation formula is extraordinary. Is this a sign of things to come in the M&A universe, at least for early-development deals? We’re not sure exactly how ‘expected brand contribution’ is calculated, but it sounds dangerously dependent on the acquiror’s discretion.

Also, allowing adjustments for future sales volume, not value, sounds a bit like mixing ‘apples and oranges’. Oh well, maybe these are new methodologies that we in the M&A community will have to get used to.

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