Glenboden M & A Originations

Diageo acts like a venture fund by taking minority stake in spirits start-up

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Origination Status acquisition of minority shareholding announced, April 2008;
Asset Nuvo (UK), ultra-premium French sparkling spirit start-up;
Buyer Diageo plc (UK), world’s leading premium drinks business;
Seller The London Group LLC (UK), backed by entrepreneur Raphael Yakoby;
Buyer Rationale ‘ground floor’ investment in exciting innovative brand /product formula;
Seller Rationale backing of large group for distribution in US market;
NBs Yakoby earlier started up Hpnotiq, a similar ultra-premium drinks proposition
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‘This is a great example of a big company acting small to leverage the entrepreneurial spirit’, as Diageo’s news release neatly put it. The deal confirms yet again the trend for the global beverage players, whether alcohol or soft, to invest in bright new-generation products even at a very early stage in their development. You couldn’t get much smaller than Nuvo, which hasn’t even been launched yet; it almost look as though a big group like Diageo is doing what venture capital used to do.

At least with Contellation Brand’s acquisition of Svedka, or Coke’s buying of Fuze, the target companies had a few years’ history, portfolio evolution, volumes and growth to justify being on the buyers’ radar screen.

With Nuvo, it appears we have a brand that hasn’t even be launched yet – ‘Nuvo will initially roll-out in New York and Miami with additional US cities to follow’. Diageo is clearly taking a ‘punt’ on Nuvo, taking a minority stake presumably with no risk of being criticised for over-paying, as CB was over Svedka.

As for Yakoby, why would he admit a big strategic investor at the start-up phase? Most entrepreneurs wouldn’t like to do this. Although little data is available, our hunch is that Yakoby learnt lessons from his Hypnotiq experience – that a new brand needs big distribution power from day one.

We should also take a look at the Nuvo product proposition, as it provides a curious insight into consumption and marketing trends, at least in the somewhat exceptionalist US market.

Both Hpnotiq and now Nuvo leverage the French flair for luxury, innovative product formula and packaging, and product positioning. Nuvo sounds like an up-market Bacardi Breezer, being a mix of vodka, sparkling wine and fruit nectar.

The fact that it’s to be packed in single-serving bottles suggests that it will be sold through horeca rather than retail. Of course, an elaborate product like this has a high risk of being faddish and shortlived.

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