In what is perhaps one of the biggest global bets placed on our favorite spirit, Diageo announced that it has purchased Ypióca (one of cachaça's and Brazil's most storied companies) for 300 million pounds ($470 million).
Some quick thoughts on the news:
- Scale matters: The big guys aren't terribly interested in buying smaller operations without scale or footprint. Ypióca has both. It doesn't seem like buying a smaller brand and ramping it up is in any global player's strategic plan. (Note Grupo Campari's purchase of Sagatiba last August.) For an idea of how big this footprint is, walk 30 yards in any direction on Copacabana Beach and try not to hit a Ypióca kiosk. Closer to home for most of my six or seven readers, go to a liquor store and check out the cachaça "rum" section of any three stores. There's a better than two-in-three chance Ypióca will be there.
- Timing matters: Not that Diageo needs to hear it from me, but Rio hosting the World Cup and the Olympics in 2014 and 2016, respectively, must've had something to do with this deal. It's not like Ypióca was a nobody on the global spirts stage for the past several decades. We're probably going to see more of these buys as these world-class events near. The thing is, the list of Ypióca-scale brands isn't very long.
- Exchange rate matters: The real has taken a hit in relation to the pound, down 14.5% from a YTD high in February 23 and down 20.5% on a trailing-twelve-month-high basis (summer 2011).
- Cachaça matters: Ypióca had net sales of $94 million (Dec. 2011 pro forma). So, currency effects aside, Diageo paid five times earnings to nab a gigantic presence in the category. (Yes, I know that Grupo Ypióca has business interests outside of cachaça, but I'm pretty sure Diageo's executives didn't say "Wow! And we can get a paper-and-cardboard business too?")
- Family matters: I can't possibly believe the Telles family took the first offer that Diageo brought to the table. I'm guessing this took awhile. You don't sell a family-owned company of more than 160 years and five generations on a whim.
It's not a secret that I've never been a big fan of Ypióca, strictly as a matter of personal taste, though I do recognize that this transaction is breathtakingly huge for this category. While the fight to become the Grey-Goose-or-Patrón-of-cachaça still wages—and is not decided by this particular transaction—it would be tough to top this particular deal just in terms of the raw scale involved.
Thanks to Copa's Jason Montgomery, who popped this item into my Facebook feed.
Disclosure: Diageo is a client of my day-job, Edelman PR, though the firm is not specifically engaged in the communication and promotion of this transaction.
Photo credit: solonbro