Last Monday, Bacardi announced the acquisition of the remaining stake of tequila Patron’s brand owner, the Swiss-based Patrón Spirits International AG. Patrón is a tequila premium brand founded in 1989 by John Paul DeJoria and Martin Crowley. Within a short period, the brand made its way up, positioning itself, as its namesake, as a great figure in the premium spirit market in the United States.
The story started a decade ago when Bacardi reportedly bought a 30% stake in Patrón for $500m. Since then, both companies have maintained a successful business relationship, working together in distribution channels. By the end of this semester, the Bermuda-based company will be buying out John Paul DeJoria’s 70% stake in Patrón. The valuation price reached the sum of $5.1bn, analysts’ estimates to be a 25.5x EBIT. After the announcement, DeJoria commented during an interview that the valuation was done internally, without any external financial advisor. Further information on the matter includes DeJoria being appointed Emeritus Chairman and Patron’s leadership remaining unchanged.
With this, Bacardi is taking another step towards consolidating a new position in the blue agave-based spirits by complementing its brand portfolio that includes tequila Cazadores and Corzo. The rum company is confident that its large distribution network will be beneficial to market Patrón worldwide, which already has a top position in the premium liquor market in the United States, producing more than 3 million cases a year.
From the outset, this transaction appears to be a bold move from Mahesh Madhavan, Bacardi’s CEO since October last year. But in the industry’s context, the acquisition means keeping up with the pace of competitors and fighting for a place in the top shelves. The agave industry has been experiencing a big transformation: leaping from a local commodity in Mexico to a premium and high-end beverage worldwide, with celebrities and entrepreneurs being owners and/or brand ambassadors. Within a decade, tequila sales boomed in the United States, its biggest market. Latest M&A activity depicts the fact that agave spirits are shaking the market. Sales have risen along with brand and companies’ valuations.
For instance, Hollywood actor George Clooney, and two other American businessmen, Rande Gerber and Mike Meldman, founded tequila company Casamigos in 2013. Several months ago, British liquor company Diageo bought it for $1bn, adding to the brand of the Tequila Don. Early this year, the French company Pernod Ricard purchased the remaining stake of Tequila Avión. Ken Austin and the rapper Jeezy, who served as brand promoter and advisor, founded the company in 2011. Years later, the French group acquired the majority (84%) in 2014. Pernod Ricard also entered the mezcal (another agave distilled liquor) business with the purchase of Del Maguey.
The party might be over. Tequila is a product protected by a designation of origin, only produced and crafted in the soil that gave its name. As the NAFTA negotiations keep on going, the future of a buoyant industry that is mostly dependent on the demand of the United States consumers is still not clear, with the trade tariff of 20% on Mexican exports potentially affecting its steady growth significantly. ¡Salud!
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