MGP Ingredients bets on Luxco (MGPI)
MGP Ingredients announced a merger agreement with Luxco yesterday. Luxco has a spirits portfolio including Ezra Brooks Whiskey, Daviess County Whiskey, Yellowstone Whiskey, El Mayor Tequila, and Everclear, as seen in the image below. Luxco had revenue of $202M in the twelve months ended Oct. 31. Luxco had a 9-liter case volume of 4.8M in the same period.
The deal represents an enterprise value of $475M consisting of equal part cash and equity. It is expected to be immediately accretive to gross margins, EPS, and free cash flow. The purchase price represents a multiple of 16.9x trailing adj. EBITDA and 13.8x run-rate EBITDA with synergies. MGP’s leverage will be 3x Pro-forma EBITDA. This is a transformative transaction for MGP, redefining the company’s future. While the acquisition multiple and leverage are high, they are not extreme with synergies and the equity portion of the price. What we are interested in learning is whether any of the acquired brands can be much larger. Our preference would be for focus brands to represent significantly more than half the revenues. Acquiring such a large portfolio of disparate brands seems to raise the execution risk in a transaction.
Craft openings continue through the pandemic (SAM)
232 breweries opened in Q4. That brought the total for the year to 12,532, up 948 from 2019. In comparison, 1,469 breweries opened in 2019. No state saw a decline in the number of breweries. Despite a pandemic and on-premise consumption closed for months in most states, breweries continued to open. Before the pandemic, craft breweries, on average, had about 40% of their sales from on-premise. That speaks to the ability of many breweries to switch their distribution methods. Many breweries successfully managed the transition from kegs to cans despite some shortages in cans. Many breweries also added delivery options, often doing it themselves. According to the Brewers Association, craft volumes for the industry are expected to be down 7-8% in 2020. With lower rent and personnel costs, craft brewing managed the pandemic better than other sectors like restaurants and retail.
Online grocery in 2021 (KR)
At the FMI-The Food Industry Association conference, Nielsen outlined its outlook for online grocery spend in 2021. In the 52 weeks ended November 30, online food and beverage sales (including grocery and restaurant online delivery) accounted for 12% of sales. Food and beverages became the largest online CPG segment representing 44% of sales. Healthy and beauty followed with 38%, home, and kitchen at 8%, pet supplies at 8%, and baby care at 2%. CPG food and beverages totaled $66B compared to $40B for restaurant delivery. Looking to the future, NielsenIQ forecasts CPG food and beverage online sales of $103B in 2021 with a low estimate of $94B and a high estimate of $109B, as seen in the chart below. That represents a growth range of 42-65%. With CPG sales in grocery stores set to decline in 2021 against the pandemic comparisons, a shift of that magnitude would make the margin drag of online sales more obvious.
