Each week, Just Drinks’ editors select a deal that illustrates the themes driving change in our sector. The deal may not always be the largest in value or the highest profile but it will tell us where the leading companies are focusing their efforts, and why.
This new, thematic deal coverage is driven by our underlying disruptor data, which tracks all major deals across our sectors.
The deal
UK-based investor Kliro Capital Partners has snapped up Intercontinental Brands, a local beverage-alcohol manufacturer and distributor.
Financial terms were not disclosed. The deal is the first acquisition made by Kliro Capital Partners, which was incorporated in 2020 by Warren Scott, the former CEO and co-founder of Quintessential Brands Group.
The family investment office says it has been “looking to invest in an appropriate UK spirits business”.
Intercontinental Brands has its own brands, is a supplier of private label and is a contract bottler. Its roster includes Cactus Jack’s, Hawksbill Rum, V-Kat, Veroni Amaretto and Rozél Vodka.
Why it matters
In some ways, there are echoes here of last week’s Deal focus, when we featured Stock Spirits’ purchase of German spirits business Borco-Marken-Import Matthiesen.
There are important differences, not least that the Borco deal centred around an international brand in Sierra Tequila, a brand that dominates one of Europe’s most attractive Tequila markets.
However, for all Sierra’s distribution, the acquisition struck us as very much a value play by Stock Spirits. And Kliro Capital Partners’ move for Intercontinental Brands – the investor’s first purchase since it was set up in 2020 – feels the same way.
After all, one only has to look at the most recent financial accounts filed by Intercontinental Brands with the UK’s Companies House. Granted, they were filed in November and cover the year to the end of February 2022 but the group’s vision is clear. The company said its “overriding strategic objective is to be recognised by its customers and their consumers as the number one UK provider of value alternative alcoholic drinks in the 8-22% vol. category”, while wanting to provide “market-leading own label, CDM [contract, design and manufacturing] and packaging services to its third-party customers”.
Value, then, appears central to the Intercontinental Brands business model and a glance at the company’s portfolio underlines the strategy, with products including Cactus Jack’s schnapps, Palm Beach rum liqueur and Veroni amaretto.
Premiumisation has underpinned the growth of the spirits markets for years and brand owners, facing more consumers being interested in moderation, find solace in the belief that, even if drinkers are sipping less, they are sipping better.
However, the pressures we’ve seen on consumer spending from persistent inflation across markets will have had senior spirits executives watching their sales figures closely, even if few have come out and expressed much concern about trading down. But why wouldn’t drinkers think carefully about the drinks brands they buy?
It brings to mind comments made to Just Drinks at the turn of the year by Mark Lynch, a partner at UK-based corporate-finance advisors Oghma Partners.
“Why would it be the case that premiumisation would continue to stroll on regardless of the pressure that consumers are under?” he asked. “I think what we get is more of a bifurcated sector, which is you’re a value player, you’re a premium player and there’s not much in between possibly – but that doesn’t mean there’s not going to be pressure on all areas to give the consumer a better cost offer one way or another. There may well be some near-term let-up in that sort of trend.”
In this context, that Kliro Capital Partners has made Intercontinental Brands its first piece of M&A seems logical and founder Warren Scott appears to believe in the potential of his new asset.
“It is a good business with a strong leadership team and we believe that there is significant potential for growth both in the UK and beyond,” Scott said this week.
Those accounts for the year to the end of February showed turnover of £40.6m ($52.2m) (versus £35.4m 12 months earlier), an operating profit of £1.8m (against just shy of £1m) and net profit of £1.6m (compared to £836,000).
It’s unclear how Intercontinental Brands fared in the year to the end of February 2023 and how it’s performing in the first half of its new fiscal year but Scott, the former CEO and co-founder of Quintessential Brands Group, has ambitions to use his new asset as a platform.
“This is the first step in our strategy to create a leading group supplying a diverse range of drinks products to UK retailers and third-party brand owners,” he said.
Whether that means adding more brands through M&A will be closely watched, though it wouldn’t be a surprise. Longer term, economic pressures ease, the question will be to what extent that trend of premiumisation will gain fresh momentum and what place more ‘value’ brands will occupy as more confident drinkers fill their shopping baskets.
