Glenboden M & A Originations

Improved performance points to Blavod as the next niche vodka acquisition candidate

Priority Rating priority rating 3
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Origination Status announcement of positive Q1 results, November 2008
Asset Blavod Extreme Spirits plc (UK), niche vodka marketer and wine & spirits distributor
Buyer potential bidders include Diageo, Campari, Bacardi
Seller founders, management and public shareholders of Blavod
Buyer Rationale development of next -generation spirits brands
Seller Rationale timing, start-up fatigue
NBs Blavod to change its name, to Chelsea Wine & Spirits, to reflect broader drinks portfolio
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After selling its declining and loss-making US operation in 2007, Blavod became profitable for the first time in 2008. That achievement, combined with the broadening of its portfolio to include Blackwood’s gin, make it look like a sustainable business that could attract a big strategic acquirer. All the more so considering how the major players have been picking up such new frontier brands, in recent years, with a view to nurturing them into the Smirnoffs of the future.

Established by the Rothschild family, and based in London, Blavod’s portfolio includes its eponymous black vodka brand, with its youthful and spooky image, as well as agency brands that it imports that are as nichey and eye-catching as Blavod itself, from Mickey Finn’s flavoured schnapps to Royal Tokaji from Hungary.

Most recently, the company structured a deal to acquire the brand rights to Blackwood’s gin; this brand’s story puts it right at the frontier - a vintage gin made from Shetland botanicals that are hand –picked in a single season.

The founders did the right things to tee up Blavod for sale one day. The company is listed on AIM, and its board of directors is stacked by grey-haired men with decades of combined experience in the drinks business.

The one strategic error was to merge Blavod with Extreme Beverages in the US, back in 2002. That seemed like a good idea in cross –sales terms, but in FY to March 2008 the US side declined in turnover by 40% and was loss-making, which precipitated its sale back to its founder Jeff Hopmayer. This was a welcome release for Blavod, giving it a one-off financial gain to boot.

In 2008, Blavod’s core UK operation grew by 25% in sales value terms, to reach 4 mln GBP, with a nearly 30% increase in volume sales. This allowed it to break even at the EBITDA level. In Q1 2009 the company went a step further, growing its turnover by 35% and booking its first operating profit.

Although much of this performance has comes from the distribution of agency brands, sales of Blavod itself are also growing, by 10% in both FY2008 and Q1 2009, and the company now also controls the exciting Blackwood’s gin brand.

That, coupled with Blavod’s new-found financial sustainability, as well as access to capital through its AIM listing, suggest that it’s a business that cannot be ignored by the majors in the spirits world now.

The last two years have seen a number of deals where a big group has acquired an early –stage spirits business from its entrepreneur founders. The idea being that the brand appeals to young consumers, and has the potential to grow into a big mainstream seller given the right marketing resources and sales power.

Examples include Svedka vodka, acquired for a very high valuation by Constellation Brands after a spike in its sales in 2006; X-Rated, around since 2003 and bought by Campari as a super-premium vodka offering in the US; and Nuvo, the ultra-premium French sparkling vodka cocktail in which Diageo invested before it was even launched.

Any one of these majors, or other top 10 spirits groups, could take the same approach with respect to Blavod.

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THIS LEAD'S VALUATION
Size (€ mln) 15
Sector spirits
Asset Quality UK niche
Seller founders
Buyer large plc
P/S 2,5
P/Ebitda n/a
Type value estimate
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