Glenboden M & A Originations

Bacardi has the strongest rationale and means to win privatisation of Absolut vodka

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Origination Status Swedish Government issues privatisation tender, March 2007;
Asset V&S Group (Sweden), leading international spirits producer and owner of Absolut brand;
Buyer main contenders are Bacardi (Bermuda), Pernod Ricard (France) and Fortune Brands (USA);
Seller Vin & Sprit A/S (Sweden), 100% state-owned company;
Buyer Rationale to add Absolut brand to portfolio;
Seller Rationale revenue for state budget and debt repayment, timing;
NBs Absolut is the no. 3 premium spirits brand, and the no. 2 vodka brand, in the world.
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Fortune Brands is the buyer of reference for Absolut. The US market constitutes 50% of the brand’s sales volume, where it is distributed by Fortune. This acquisition would also enhance Fortune’s footprint and platform beyond the USA – Absolut’s sales in 13 other strategic markets are growing mostly in double-digits. But in the end, the group might not be big enough or sufficiently international to win the bid.

In terms of other buyers, Diageo already has Smirnoff, the world’s no. 1 vodka; Pernod is fighting to secure international ownership of Stolichnaya, the world’s no. 3 vodka. Bacardi is the best fit, since their vodka offering is rather limited to Grey Goose, which is in the super-premium segment.

It’s quite odd that something as commercial and non-strategic as a drinks company should still be state-owned, in such a developed market economy as Sweden. Even in the ex-Communist part of Europe, the only similar case Glenboden can think of is Budvar in the Czech Republic, which is still state-owned only because of its legendary trademark dispute with Anheuser-Busch over Budweiser.

On the other hand in terms of price maximisation, it’s likely that the patience of the Swedish authorities will be rewarded. On top of the general boom in M&A, spirits brands are one area where valuations are particularly high.

The acquisition of Svedka vodka by Constellation Brands was estimated at a similar P/S multiple. Of course, Absolut is a big position whereas Svedka is an exciting platform, but some might say that bigger scale is equivalent to faster growth in valuation psychology. If anything Absolut, being genuinely global, should be valued at a premium over Svedka for that reason – it’s much easier to appeal to one nation than to many.

On top of that, the financial performance of V&S shows the company to be nicely teed-up for a sale this year. Sales value grew by 8% in 2006, slightly higher than the average over recent years; and the operating margin, up 10% to reach 23% of sales, is at or above the average for the big spirits groups.

All things considered, the valuation looks full-but-reasonable, at the crucial P /EBITDA level, next to ‘comparatives’ in tobacco and elsewhere.

Remember that Absolut, whilst the jewel in the V&S portfolio, only constitutes about half of a well-managed business that is the 6th largest international spirits group by volume, with a leading position in prosperous northern European markets. Then there’s also our point about Svedka comparisons.

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THIS LEAD'S VALUATION
Size (€ mln) 4.400
Sector spirits
Asset Quality global no.3 branded
Seller state
Buyer large corporate
P/S 4,0
P/Ebitda 16,0
Type total consideration
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