When the news came down last week regarding the sale of Grimsby’s Forty Creek Distillery Ltd. (“Forty Creek”) to the Italian liquor giant Gruppo Campari, the headline caught my attention on a couple of fronts. To start, Forty Creek is a brand of whisky that I have been known to favour from time-to-time and so the news of the sale definitely piqued my interest. But secondly, and more importantly, the valuation side to this story is quite remarkable.
From the initial news release itself, the transaction was described as being a purchase price of CAD $185.6 million for a company whose revenues were estimated at CAD $39.5 million for the year ending March 31, 2014. Never mind talking about earnings multiples, but that purchase price translates to an incredible multiple of 4.7 times its&rsquorsquo; revenue. Some further investigation into the transaction indicates that the purchaser, Gruppo Campari, sees the transaction as being an EBITDA Multiple of 14.5 times based on the year ending March 31, 2014 expected results which is also a huge multiple that I’m sure the owners of Forty Creek felt they couldn’t turn down.
All of these multiples point to one thing – the existence of a ‘special purchaser’. Special purchasers are those purchasers of a business that believe they can achieve certain post-acquisition synergies and/or strategic advantages by combining the acquired business with their own. Gruppo Campari recognized the synergy between their brand and Forty Creek and seized the opportunity to acquire them. They saw the future – take the brand to the next level by leveraging their global distribution network. This is a future that Forty Creek did not feel they could deliver on their own effectively making Gruppo Campari their ideal purchaser. Similarly, business owners would want to identify and target like-minded companies when planning the sale of their business. These special purchasers could be competitors, customers, suppliers or a business in a related market space and, as was the case with Forty Creek, they may be located outside of Canada.
All in all, this is quite a story and it is fantastic to see a local business doing so well. Here’s to a successful transaction, Gruppo Campari growing the Forty Creek brand and all of us continuing to enjoy this world-class brand well into the future!