Beam, the US-based global spirits group, is acquiring the fast-growing Pinnacle Vodka and Calico Jack rum brands and other related assets for $605 million in cash from White Rock Distilleries. Pinnacle Vodka, with 2012 volumes expected to exceed 3 million 9-liter cases, will significantly enhance Beam’s presence in the large, growing vodka category. With a sustained track record of very strong double-digit growth, Pinnacle has already become the fourth largest imported vodka brand in the US.
Pinnacle’s growth is broad-based across its product line, as its unflavoured and flavoured variants have each achieved the one-million case threshold. Pinnacle’s classic unflavoured vodka was the US market’s fastest-growing non-flavoured imported vodka in 2011, and Pinnacle has also pioneered the most exciting flavours in the vodka category, including the successful Pinnacle line of whipped dessert-flavoured vodkas. Pinnacle’s track record of successful flavour innovation places the brand at the core of the category’s growth, as flavours generate the vast majority of vodka’s growth in the US.
“Pinnacle is an excellent strategic fit for Beam, giving us a strong and exciting growth platform in the sweet-spot of the attractive vodka category,” says Matt Shattock, president and chief executive of Beam. “With the synergy-driven addition of Pinnacle, which will become one of our largest Power Brands, Beam will further enhance its ability to maximize value for shareholders.”
Beam has identified significant potential cost synergy opportunities – expected to exceed 20% of the brands’ net sales – particularly from leveraging Beam’s US distribution and supply chain scale, procurement benefits and overhead efficiencies. Driven by the strong growth outlook for the brands and meaningful cost synergies, the company anticipates generating an internal rate of return substantially in excess of the double-digit risk-adjusted cost of capital for the transaction.
Net of the transaction’s expected tax benefits associated with the purchase of assets, the effective purchase price values the brands at approximately 17 times projected 2012 standalone EBITDA (or 20 times EBITDA excluding tax benefits). Including expected run-rate cost synergies, the effective transaction multiple net of tax benefits would be well below 10 times EBITDA.
Beam expects to finance the acquisition with either existing credit facilities or new debt, or a combination of both. The acquisition, which is subject to customary closing conditions and regulatory approvals, is expected to be completed in the second quarter of 2012.
Matt Shattock continues: “With our plans to substantially increase brand investment in Pinnacle, plus our marketing and innovation capabilities and our global distribution assets, we look forward to taking Pinnacle to the next level and establishing Beam as a leader in the sizeable vodka category. Since the start of 2011, we’ll have built our presence in ready-to-serve cocktails, Irish whiskey and now vodka with another bolt-on acquisition that will leverage substantial brand-building, distribution and cost synergies to deliver highly attractive growth and returns for our shareholders.”