With the World Cup and Olympics heading for Brazil in the next four years, it looks an opportune time to buy into Brazil’s national spirit.
Diageo, the globe’s biggest spirits company, has bought Ypióca and some production sites from Ypióca Agroindustrial Limitada for R$900m ($453m), giving it a foothold into the world of the caipirinha.
Ypióca is a premium version of cachaça, which is a distilled from fermented sugarcane juice, and forms the base of Brazil’s national cocktail. Ypióca has around 8 per cent market share of the total cachaça market, ranking second by value and third by volume in the category.
So is it a good deal? At around five times pro-forma net sales (R$177 per share), it’s at a similar multiple to the company’s dramatic purchase of Turkish spirit Mey Içki in February 2011.
And although the sales of Ypióca have declined slightly recently, the brand fits with Diageo’s general “premiumisation” strategy. Ypióca leads the premium cachaça segment with a 62 per cent share, and sells at around R$9 per bottle, one and a half times the usual cachaça price.
But just as importantly, this is a distribution deal. Ypióca is strong in the north east of Brazil, in areas where Diageo brands such as Johnnie Walker and Smirnoff are less well-known. Ypióca also has 256,000 outlets in Brazil – nearly 100,000 more than the 160,000 Diageo has currently.
And Daigeo has a strong business presence in the south east – an area which accounts for about 20 per cent of Ypióca sales, so Diageo can boost the brand domestically too. UBS described the transaction as a “smart bolt-on deal”.
But the overall goal, surely, is pushing Ypióca internationally. The caipirinha is hardly an unknown cocktail around the world, but with the two giant sporting jamborees of the next few years putting Brazil in the spotlight, it could be a clever moment to buy. Morgan Stanley was the adviser.
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