With Its $5.1 Billion Deal For Patrón, Bacardi Makes A Game-Changing PlayJanuary 23, 2018
Although the Tequila category has seen its share of acquisition activity lately—with Diageo buying Casamigos last year and Pernod swooping for full control of Avión earlier this month—the biggest move was saved for last. Yesterday, Bacardi announced that it has agreed to acquire 100% of Patrón Spirits in a transaction valuing the luxury Tequila giant at $5.1 billion. The deal comes a decade after Bacardi first took a 30% stake in Patrón for an undisclosed sum.
Adding the Patrón lineup is a game-changer for Bacardi, expanding the company’s super-premium spirits portfolio by some 2.5 million cases in the U.S. market. According to Impact Databank, the Patrón deal will make Bacardi the second-largest U.S. spirits marketer in retail sales terms at roughly $4.5 billion. Only Diageo, with U.S. retail sales approaching $9 billion in 2017, is larger.
At the U.S. Tequila market’s 3.5-million-case luxury tier—defined as brands retailing at $40 and above a 750-ml.—Bacardi will now hold a dominant 70% share. And despite an influx of competition in recent years, Patrón has continued to grow. Over the past three years, the brand has added about a half-million cases to its U.S. volume, according to Impact Databank, with its higher-priced Roca range ($70-$90 a 750-ml.) boosting momentum. Roca Patrón, which debuted in 2014, was up 12% to 48,000 cases last year.
Beyond its flagship Tequila franchise at 2.5 million cases, the Patrón Spirits portfolio also includes a number of other spirits labels. The largest among them, Patrón Citrónge orange liqueur, was up an estimated 2.4% to 174,000 cases last year, while Patrón XO Café slipped 13% to 135,000 cases. Pyrat rum was down about 3% to 32,000 cases, while Ultimat vodka was flat at 27,000 cases. Bacardi declined to comment on plans for the Patrón portfolio, except to note that “for the foreseeable future, it’s business at usual” at both companies. Patrón’s core executive team, led by CEO Ed Brown, will stay in place.
Patrón’s success in building the luxury Tequila category over the past 20 years has been so pronounced that it now faces a host of competitors eager to make their own mark. These days, most of the major contenders are owned by multinational spirits companies that, like Bacardi, have ample resources to bring to the fight.
In addition to Casamigos, which it acquired in a $700 million deal last summer that includes another $300 million in performance-based payouts, Diageo is active in luxury Tequila with the Don Julio brand. Don Julio is now above 500,000 cases, and Casamigos is estimated at 175,000 cases for 2017. Meanwhile, Brown-Forman has been carving out strong growth with its Herradura brand, which sold around 180,000 cases last year, and Pernod Ricard is angling for a bigger piece of the action with Avión (about 125,000 cases), in which it acquired full ownership last week after taking a majority stake in 2014.
Bacardi’s blueprint to achieve full control of Patrón could potentially be repeated with a number of other promising brands in which it now owns minority stakes. In 2014, Bacardi took a minority interest in Compass Box Scotch whisky, and last year it followed with minority stakes in Teeling Irish whiskey and Ilegal mezcal. —Daniel MarstellerSubscribe to Shanken News Daily’s Email Newsletter, delivered to your inbox each morning.