The recent report that the producer of the Grand Marnier liqueur, Marnier-Lapostelle, is considering its options means that its days of independence are numbered. This should be of little surprise. The growing consolidation, lack of scale of the company and the high prices spirits brands and companies are fetching means selling up looks very appealing to the current owners.
While the company has a high end Chilean winery, a cognac and a premium pisco brand, Marnier-Lapostelle’s prime asset is its premium cognac-based liqueur, Grand-Marnier. The brand had 2% of global other liqueur volumes in 2013, with its leading market being the US, but also having a major presence in Canada and a number of Western European markets, including Germany and France.
However, the brand is almost entirely reliant on third party distributors, such as LVMH, in its largest market, the US. This reliance limits the company’s returns on the brand, as it lacks scale to gain good distribution deals, and also its ability to develop the brand.
High value and many suitors likely
The difficulties facing smaller, one-brand companies could be temptation enough to sell up; however, the very high prices that brands and companies command now make it even more so. Rémy Cointreau paid c. x35 EBITDA for the Bruichladdich Distillery and its premium brands. While in 2014, on a grander scale, Suntory paid x20 EBITDA for Beam, despite the latter’s long tail of weak brands, and William Grant was reported to be paying 25-30 times EBITDA for Drambuie.
These high prices are due to in part to the rarity of such brands becoming available, as so many are privately-owned, but also due to the importance of brands in spirits. Category growth, especially in liqueurs, is frequently driven by one or two brands, eg Jameson in Irish Whiskey or Jägermeister and Aperol in bitters, making these brands particularly sought after.
Based on the factors above, and the company’s revenues and EBITDA of EUR141 million and EUR24 million respectively, means that the price paid by any winning bid is likely to be far higher than the c.EUR350 million enterprise value, and more likely to be in the EUR500-600 million range.
Existing owners of cognac brands would undoubtedly have an advantage, thanks to production/supply synergies. This would primarily mean LVMH, Pernod Ricard and Rémy Cointreau, as the other player, Beam Suntory has high debts and is not French-owned. The latter could be important if the current owners consider passing the brand on to the “right” owner to protect the brand’s heritage. This seems certainly to have been a factor in the sale of Drambuie to William Grant.
Of the three main players, LVMH and Rémy Cointreau seem favourites, as the acquisition would fit in with their premium portfolio. Pernod Ricard is less likely as, while it has the funds, whether it would be able to get a sufficient return on investment or be game changing enough is unclear.
Outside the French companies, other possibilities could be Brown-Forman and William Grant. Both have sufficient financial resources to make a bid. Many of the other international players are in no position to compete: Diageo due to its no compete clause in cognac with LVMH and - like Pernod - the brand may lack the returns it requires; following its double acquisition, Campari lacks the requisite financial strength; Bacardi also probably lacks the financial strength and, more importantly, the strategic direction.
With its greater resources and close distribution ties, LVMH, is likely to be favourite for Marnier-Lapostelle. However, the rarity of such a high quality brand as Grand Marnier there is likely to lead to some intense bidding and mean the winning bid, be it LVMH or not, will have to pay a high price.
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