Shanken News Daily’s article titled, “Craft Spirits Continue Bull Run, With More M&A Activity On The Horizon” details the growing wave of merger and acquisition (M&A) activity occurring within the alcoholic beverage industry. Particularly noticeable in the craft spirits segment (but affecting all types of beverage alcohol producers), M&A activity is predicted by credible sources to continue apace for producers. In fact, Wine & Spirits Daily just reported supplier M&A activity jumped in 2017 with “just over 30 deals that resulted in new ownership and 4 “investments” made in smaller companies”. What are the drivers of M&A activity? What makes a producer an attractive target for acquisition, and what can an organization do to attract interest in this regard?
To be sure, not many craft producers set out to develop their business with the aim of being acquired. However given the cyclical nature of markets, it must be something most have considered especially as the current environment is so ripe for M&A activity. With this in mind, and whether or not it is their ultimate goal, savvy producers are at least pondering the possibilities. To this end, there are some actions that can be taken by those companies interested in the option.
Forbes magazine published a solid article running down the “6 Key Financial Indicators Of Attractive Acquisition Targets”. The list includes Growth, Profitability, Leverage, Size, Liquidity and Valuation. To make a private organization attractive and likely become an acquisition target, Forbes says it should be “large, fast growing, and have high profitability, high leverage, and low liquidity”.
There are innumerable pathways to achieving the sort of profile identified by Forbes as attractive to acquisitive entities. However, we can think of none more applicable to achieving this goal than the use of a superior solution for beverage alcohol sales and trade marketing. GreatVines has played a significant role in helping a number of customers burnish their growth, profitability and valuation such that they were ultimately acquired by large, international brands.
A solution like GreatVines enables producers to increase brand awareness and market penetration which leads to an expansion of sales territory and overall sales volume. It is also instrumental in improving operational efficiency and supports effective application of pricing, customer relationship management and return on strategic trade marketing spend. In addition, those GreatVines customers acquired successfully by larger brands reported that the data housed in their GreatVines system was instrumental in proving the numbers upon which their acquisition was based.
After having used all the GreatVines platform tools to grow sales volumes and drive improved profitability, craft producer companies have been able to demonstrate higher valuations and could support them, using hard data stored in their implementation. Execution data, proof of activations, brand activation data and overall sales volumes were all reviewed and easily validated by the acquiring companies thanks to the GreatVines solution. One former GreatVines customer even reported that their valuation was $1 million higher at the time of their acquisition – something they attribute largely to their usage of the GreatVines solution.
So not only does GreatVines help producers execute more and better, it also gives visibility into HOW the product is being sold. Due diligence is enhanced greatly by understanding the exact accounts that are buying the product, as well as what was done in the account to deliver the sales. If a product is being sold to an account at a very high discount, and supported with expensive tastings and other promotions by the producer, the value and long-term sustainability of the distribution can be called into question. This is something important to know BEFORE an acquisition is made.
On the flip side, producers can boost the value of their product by demonstrating the quality of their distribution, repurchase rates, visibility with menus and displays, and other key brand building execution and success. For example, a producer using GreatVines will be able to report on their products distribution in the specific key/target/most important accounts in the market, the velocity of depletions and reorder rates in those accounts, and the visibility the product has achieved in the account. So the producer can say “we’ve sustained distribution in 90% of the best cocktail bars in the market with 70% repurchasing an average of three cases every 60 days, 65% with permanent menu features, and by the way … here is the list of accounts with their sales and activity data and pictures of the menus.”
The Shanken News Daily article quotes Thomas Mooney, co-owner and CEO of House Spirits which sold its Aviation Gin label to Davos Brands around this time last year. Speaking about the sustainability of the current flood of M&A activities in the industry, Mooney said, “Not only is this the tip of the iceberg, it’s the tip of the tip of the iceberg. Spirits have always been a very scale-sensitive business, where it’s very challenging to be small. And the consolidation at the wholesale tier over the last few years has made things even more challenging. The path from 10,000 to 100,000 cases is very different from the path from zero to 10,000 cases.”
Whether you’re trying to grow from zero to 10,000 cases or are ready to optimize valuations and profitability, moving from 10k to 100k cases with an eye towards selling your company, you must take a long hard look at using GreatVines to achieve your goals.