Glenboden M & A Originations

Campari acquisition of Cabo Wabo points to authentic ultra-premium as prime segment for M&A in spirits

Priority Rating priority rating 3
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Origination Status company acquisition agreement announced, May 2007;
Asset Cabo Wabo Tequila (USA), ultra premium tequila brand;
Buyer Skyy Spirits LLC, 100% subsidiary of Gruppo Campari (Italy);
Seller Sammy Hagar, owner of Cabo Wabo;
Buyer Rationale expansion of ultra premium brand portfolio in US market;
Seller Rationale having strategic partner to globalise Cabo Wabo, put options for 20% shares;
NBs Cabo Wabo is one of the fastest growing brands in the US spirits market.
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This deal might be seen as a lesson in how and what to acquire, in the exciting US spirits market. Tequila is one of the fastest growing categories in the US spirits market and, although very small compared with vodka in volume terms, it’s prime territory for M&A activity as a ‘premiumised’ category. In terms of authenticity, and the staying –power that should come with it, Cabo Wabo scores very highly. Also it’s not been over-valued, which you’d expect from a thrifty buyer like Campari. This is the type of spirits deal that should be sought out and executed, in this heady environment.

We’re tempted to contrast this deal with Constellation Brands’ earlier acquisition of Svedka Vodka. Compared to Svedka, Cabo Wabo is literally ‘rock solid’ in its provenance. It was established by Sammy Hagar, former lead singer of the rock group Van Halen.

One would expect rock stars to know how a good spirit should taste, and how to live the relevant life; arguably the same isn’t true of founders whose career backgrounds are in marketing, as in Svedka’s case.

What’s more, in terms of authenticity, Cabo Waco scores very highly. It’s made not only in Mexico, but in the Tequila region itself. The drink is made from the Blue Weber Agave plant, and won double gold awards last year in San Francisco. Although established as a brand only in 1996, this tequila is made by a Mexican family that’s been distilling the stuff since the 1930s.

The valuation also seems relatively reasonable; more so than in the case of Svedka. The data isn’t available to make like-for-like comparisons, but even if Cabo Wabo’s EBITDA margin was 25% (at the high end for spirits brands), then the deal’s implied P/S multiple would be 3,0, which is significantly at a discount to the P/S of 5,0 reputedly paid by CB for Svedka.

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THIS LEAD'S VALUATION
Size (€ mln) 60
Sector spirits
Asset Quality US niche branded
Seller individuals
Buyer large plc
P/S n/a
P/Ebitda 11,8
Type total consideration
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