Bacardi to buy out Patron tequila in $5.1 billion deal

(Reuters) - Bacardi has agreed to buy out Patron Spirits International in a deal valuing the top high-end tequila maker at $5.1 billion, highlighting the appetite big drinks groups have for the Mexican spirit.

FILE PHOTO - An exhibitor arranges Bacardi rum bottles during the TFWA (Tax Free World Association) exhibition in Cannes, southeastern France, October 19, 2009. REUTERS/Eric Gaillard

The deal comes days after Pernod Ricard bought out Avion Tequila and months after Diageo bought George Clooney’s Casamigos tequila for up to $1 billion.

Jefferies analysts put the price at about 25.5 times Patron’s estimated operating earnings and 7.5 times its sales. That is well below the estimated 20 times sales that Diageo paid for Casamigos, but Patron is a much more mature business, with estimated sales of about $675 million per year, versus only about $50 million for Casamigos.

Tequila sales, still largely confined to North America, are growing faster than the overall alcoholic drinks market as high-end brands help tequila shrug off its image as a party drink.

The acquisition marks the first major deal under Bacardi’s Mahesh Madhavan, who was appointed chief executive in October.

It implies that Madhavan’s priorities include growing in the United States, in higher-growth premium brands and growing Patron distribution globally, said Jefferies analysts, noting that this could “make life a little tougher in the United States” for the publicly traded spirits companies.

Patron, founded more than 25 years ago, was a high-end pioneer, but now competes with a range of brands including Avion, Diageo’s Don Julio and Brown-Forman’s Herradura.

Global tequila sales rose 5.2 percent in 2016, according to research firm IWSR, while the overall market for alcoholic drinks fell 1.3 percent.

Premium brands are outselling mass-market labels, as consumers increasingly look to “trade up” to more expensive drinks.

Bermuda-based Bacardi was founded in Cuba in 1862, selling its namesake rum. It now owns some 200 brands including Bombay Sapphire gin and Grey Goose vodka. It has owned a minority stake in Patron since 2008.

The deal is expected to close in the first half of 2018.

Reporting by Martinne Geller in London and Uday Sampath in Bengaluru; Editing by Sai Sachin Ravikumar and Jason Neely