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Diageo has agreed to buy the high-end Filipino rum brand Don Papa in a deal that could be worth more than €400mn, marking the rise of the liquor as a “super-premium” drink alongside whisky and tequila.
The UK-based distiller said on Tuesday it had struck a deal to acquire the brand, which was founded in 2012 by former Rémy Cointreau executive Stephen Carroll, as it bets demand for expensive spirits can withstand a slowing global economy.
The sale follows a series of other high-end rum acquisitions by global drinks groups, including Brown-Forman’s purchase of Venezuelan brand Diplomático in 2022.
Diageo, which also makes the mass-market rum brand Captain Morgan, will pay an initial €260mn followed by a potential €178mn more over the next five years, subject to performance. The deal, funded through existing cash reserves, is expected to close in the first half of this year.
The UK-based drinks group has fuelled strong growth in recent years partly through high-end spirits acquisitions such as George Clooney’s Casamigos tequila, bought in 2017 in a deal worth up to $1bn, and its purchase of Don Julio tequila in 2014. It also acquired high-end Texas whisky distiller Balcones Distilling late last year.
Simon Hales, analyst at Citi, said: “The super-premium rum category has been highlighted by many industry observers as the next exciting growth category in spirits. Given similar craft credentials to other brown spirits, ‘sippability’ and opportunities to expand in [upmarket bars and restaurants], it clearly has potential.”
But he added that there was a “risk that the payback may take longer than envisaged. Moreover, given the ongoing uncertain backdrop for spirits — and premiumisation trends — into 2023, and the associated further cash from the Don Papa deal, this may limit the potential for further cash returns at Diageo in the near-term.”
Don Papa is distilled on the Philippines island of Negros Occidental, also known as “Sugarlandia”, and aged in American oak barrels. Its largest markets are France, Germany and Italy and founder Carroll will remain involved with the brand, Diageo said.
Rum accounts for about 5 per cent of Diageo’s sales, said Ed Mundy, analyst at Jefferies.
John Kennedy, president of Diageo’s Europe and India division, said: “This acquisition is in line with our strategy to acquire high growth brands with attractive margins that support premiumisation, and enables us to participate in the fast growing super-premium plus segment.”
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Image and article originally from www.ft.com. Read the original article here.