Glenboden M & A Originations

Whyte & Mackay suggests that premium spirits are a good category for private equity

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Origination Status negotiations ongoing for sale of portfolio company, January 2007
Asset Whyte & Mackay (UK), leading global producer of bulk and private label Scotch; owner of “Whyte & Mackay’, ‘Vladivar’ and ‘Isle of Jura’ brands
Buyer United Breweries (India), no. 3 global spirits distributor (region-specific)
Seller funds managed by Vivian Immerman and Robert Tchenguiz, international businessmen
Buyer Rationale access to supply of Scotch for distribution in India, premium Scotch brands
Seller Rationale exit or part exit
NBs Whyte & Mackay est. cca. 10% global Scotch share, of which branded sales only a small part
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In 2001, Whyte & Mackay was sold by Fortune Brands of the US to an MBO backed by the private equity arm of WestLB. The company started to make losses, owing to a price war in bulk and private-label Scotch, the mainstay of Whyte & Mackay’s business. That caused prices to decline by about one third by the time WestLB decided to bail out and sell their stake to the Immerman and Tchenguiz team in 2005. Patience, and an investment plan for the branded side of W&M, may be rewarded, as the current owners have attracted a major player the the key emerging market of India, as their exit route.

Immerman and Tchenguiz’s ‘five year’ plan, which included a 50 mln GBP investment in the branded business, principally ‘Whyte & Mackay’ brand, was starting to bear fruit in 2003. In that year, Whyte & Mackay was the fastest growing blended Scotch whisky brand, with 30% volume growth in a slightly declining market.

However, it was still very small compared to market leaders, and this success was not enough to compensate for price declines in the private label business.

United Breweries is the third biggest global spirits distributor, a fact little known given its focus on India where it is dominant (60% and 50% market shares respectively in spirits and beer). It’ an emerging Indian star, looking to add more premium brands to its portfolio over the long term, as well as to expand into higher-value developed markets. In mid-2005, UB made its first direct investment outside Asia by acquiring Bouvet-Ladubey, the French wine producer.

That said, UB doesn’t want to pay any ‘trophy price’ for the Glasgow-based Whyte & Mackay brand. Protective tariffs on imported spirits restrict the brand’s potential in India. The real value for UB is the company’s stocks of aged single-malt whisky, which could be blended with Indian whisky to provide an affordable hybrid for Indian consumers that could still be positioned as Scotch.

The valuation talk corroborates this view of UB’s priorities. UB’s original price offer was 400 mln GBP, which is reportedly the value of these whisky stocks, which suggests he doesn’t really want the brand at all.

UB is also unlikely to want the UK private label business. The other interested party, William Grant, is rumoured to be after this part of Whyte & Mackay, with which it has synergies. On the other hand, Grant is unlikely to compete with UB over the W&M brand itself; they already have the global no. 4 blended Scotch brand, Grant’s, in their portfolio.

In terms of the end-game in this deal, one scenario is that Immerman and Tchenguiz won’t sell the business yet, but will enter into a distribution agreement with UB for Asian markets, and possible sell its private label contracts and relevant stocks to William Grant.

This will give the owners a ‘breathing space’ to continue to create value in Whyte & Mackay and their smaller brands. This will not be easy. The UK branded blended Scotch market is stagnant, and is dominated by brands like Bell’s and Teacher’s that are backed by giant multinationals.

If they succeed, and reach their target of a 200 mln GBP valuation for the branded portfolio, then they would have match the MBO price of 2001, with potentially up to a further 400 mln GBP (stocks value) as the upside. Maybe doable - remember that LVMH paid 300 mln GBP in 2004 for Glenmorangie.

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