Commentary

Bacardi Downs The Rest Of Patron As Market Leans Superpremium

As imbibers worldwide drink less — but pricier — alcohol, Bacardi is buying out the reported 70% of superpremium tequila maker Patrón Spirits Co. it does not already own in a deal estimated to be worth $5.1 billion. Patrón’s portfolio also includes Pyrat Rum, which it launched in 1996, and Ultimat, an ultra-premium Polish vodka it acquired in 2007. 

“The merger will give incoming Chief Executive Officer Mahesh Madhavan a prestigious brand as he works to expand Bacardi’s global footprint. The executive, who is poised to take the reins on April 1, plans to boost sales by getting overseas consumers to trade up from local spirits,” points out  Jennifer Kaplan for Bloomberg.

“Global tequila sales rose 5.2% in 2016, according to research firm IWSR, while the overall market for alcoholic drinks fell 1.3%. Premium brands are outselling mass-market labels, as consumers increasingly look to ‘trade up’ to more expensive drinks,” report Reuters’s Martinne Geller and Uday Sampath Kumar. “Bacardi said it has had a minority interest in Patron since 2008. And it wasn't missing tequila from its portfolio: It already has the Cazadores and Carzo brands,” they continue.

“Bacardi will tap debt markets to help finance the deal, according to a person familiar with the deal. Bacardi acquired an initial 30% stake in Patrón for less than $500 million in 2008, said the person, who asked not to be named because the details are private," Bloomberg’s Kaplan reports.

“Patrón, which was an early entrant in the premium tequila market, is now the industry’s leader, with U.S. sales of $1.6 billion in 2016, according to Euromonitor, a market research firm. However, it faces increasing competition from several brands, including ones backed by celebrities such as George Clooney and Justin Timberlake,” writes Cara Lombardo in the Wall Street Journal, which carried news of the deal before it was officially announced yesterday.

“Adult consumers are very interested in high-end superpremium tequilas for sipping as much as cocktails,” Distilled Spirits Council SVP Frank Coleman tells Lombardo. “[At Patrón], they’re now starting to finish tequila in sherry casks like the scotch guys.”

And like those guys, they are looking for a global presence.

“While the U.S. market is important, Bacardi sees opportunity to grow the brand outside of U.S. markets. Tequila is one of the fastest-growing and most attractive categories in the spirits industry. In 2016, 15.9 million nine-liter cases were sold in the U.S., according to the latest data from Distilled Spirits Council. Since 2002, tequila volumes have grown 121%, an average rate of 5.8% per year,” writes  Kirsten Korosec for Fortune.

“Adding Patrón to the Bacardi portfolio creates a tremendous opportunity for the brand outside of the United States as Bacardi’s international distribution network will help grow Patrón around the world, increasing scale in the U.S. and globally,” Bacardi Limited CEO Mahesh Madhavan says in a statement.

Indeed, “the transaction marks another foray into the market for the increasingly popular Mexican spirit, which has seen rapid demand growth in recent years that has outpaced that of whisky and gin,” writes Peter Wells for Financial Times. “It also follows in the footsteps of Diageo last year paying at least $700m for Casamigos, a tequila brand launched five years ago by actor George Clooney and two of his friends.” 

Up to a billion, actually, if it performs well over the next decade, we reported in June.

“Bermuda-based Bacardi was founded in Cuba in 1862, selling its namesake rum. It now owns some 200 brands including Bombay Sapphire gin and Grey Goose vodka,” according to the Reuters report.

Patrón Spirits was co-founded in 1989 by Austin, Tex.-based billionaire John Paul DeJoria and his friend Martin Crowley. Crowley died in 2003, and DeJoria became principal owner of the company in 2008. In 1980, DeJoria co-founded the hair-care company John Paul Mitchell Systems, which is based in Beverly Hills, with $700 in capital. He remains as chairman there. DeJoria and his wife, Eloise — whose fortune Forbes estimates to be $3.1 billion — have maintained a residence in Austin since 1997, according to an account in the Austin American-Statesman.

The Patrón leadership team, including CEO Edward Brown, COO David R. Wilson, and CMO Lee Applbaum, will continue in their roles, according to the Bacardi news release.

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