50,000 cases. However, the transaction values for some of these brands have been staggeringly high leading to similar, or higher, valuation expectations from many independent brands of similar positioning. Recognizing that there is only so much investment capital to deploy, large suppliers are becoming more comfortable “dipping down” to invest in attractive producers with lower case volumes. In doing so, they can place numerous small bets and trust their distribution muscle to grow the brands and extract significant brand value without having to cut a large acquisition check. The success of this investment strategy is yet to be determined but it’s safe to assume this trend will continue in the near term as suppliers look to diversify their portfolios to meet shifting consumer demands.
OUTLOOK FOR 2020 Peering into our crystal ball reveals that 2020 should be another year of robust spirits industry M&A activity. Economists are indicating that the economy will remain steady in the near term which should increase the appetite for additional acquisitions. Additionally, interest rates remain at record low levels enticing acquirers to utilize “cheap” debt to help finance deals. Suppliers will continue to wrestle with the challenging distribution networks spurring additional transactions to remain relevant with their distributor partners. Similar to prior years, the lion's share of activity will revolve around luxury-priced, craft offerings. These products continue to drive the growth of the overall spirits industry as consumers continue their promiscuous consumption patterns. Investment interest from private equity firms, as well as beer and wine focused companies, should remain strong as the spirits category continues to outperform all other beverage alcohol categories. The combination of these factors signals that the good times will continue to roll in the new year.
Kevin O’Brien is a Sr. Vice President with Zepponi & Company, a leading beverage alcohol M&A firm. Dedicated to the beverage alcohol industry, Kevin has presented on various accounting and finance related topics for the American Craft Spirits Association, American Distilling Institute, Brewers Association, and Oregon Wine Board. Kevin will be providing additional insight into M&A activity during his presentation at the American Craft Spirits Association convention in March 2020.
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