EQT looks at Vin & Sprit

Nordic buyout firm EQT is making bid for Swedish spirits brand Vin & Sprit. The move is a rare one for European private equity.

Private equity is, for the most part, teetotal. Sharia-compliant funds allow Muslim investors to follow Islamic laws that prohibit alcohol, along with gambling and pornography. Western investors aren’t tied to such laws, but tend to self-regulate and avoid gambling and pornography, while the drinks market has already been through a swathe of consolidation by large corporates trading on synergies, leaving few assets up for grabs. There are, however, occasional exceptions.

EQT, a Nordic buyout fund, is currently looking at Swedish drinks maker Vin & Sprit, the distiller of the Absolut vodka brand that was put up for sale by the Swedish government earlier this year. While EQT has only one other drinks brand on its books – alcohol-free China-based juice producer Yin Rong – its competitors are Pernod Ricard, Diageo, Anheuser-Busch, Bacardi International and Fortune Brands.

Pernod was reported to be putting together a US$5bn bid for Vin & Sprit at the beginning of the year, and it is still questionable whether EQT would be over the limit, with financing tight for a private equity tilt of this magnitude.

One of the few other private equity gambles on the alcoholic drinks manufacturing sector was also one of the largest deals in Q3 2005. Starwood Capital, a US investment firm, bought France’s Taittinger CVCC, the world’s sixth largest champagne producer, for €2.26bn.

The same year, rival French firm Butler Capital Partners attempted to buy another champagne producer, Lansons International, for about €500m, but was rejected.

In early 2006, UK-based mid-market buyout firm Duke Street Capital sold its Paris-listed drinks company Marie Brizard & Roger International (MBRI) to Polish vodka distributor Belvedere in a transaction valuing the business at €397m, a significant premium to the group’s share price at the time and a sizeable, but undisclosed, money multiple for Duke Street.

For the most part, though, private equity’s forays into the drinks market have been at the retail end. In 2005, PPM Capital, the currently captive private equity arm of insurer Prudential, sold the Barracuda Group of pubs to Charterhouse Capital Partners in a £262m deal, beating competition from Apax, Bridgepoint and Cognetas.

In the same year, London-based Alchemy Partners acquired 178 high street establishments owned by Spirit for £177m. In 2004, Alchemy sold an estate of taverns called InnSpired to Punch Taverns for £335m.

In the mid-market, most of the transactions have been in high street drinks retailers, or off-licence chains, with ECI buying Bargain Booze from Cognetas for £65m in early 2006 (with Lloyds Development Capital, ISIS, Gresham and Barclays Capital reportedly losing out).

Terra Firma Capital Partners, which now makes much larger bets, bought Threshers, which owns the Threshers, Wine Rack and The Local off-licence brands from Punch for about £225m in 2000.

Since then, Terra Firma has netted around £200m from a sale and leaseback of some of Threshers’ property estate, before selling the business and its associated pension scheme to Pension Insurance Corporation, formed by former Duke Street Capital head Edmund Truell.

Unwins, another off-licence chain, proved a gamble too far for DM Private Equity, a small group of private investors, which lost out when Unwins went into administration at the end of 2005.

For financial investors, the alcoholic drinks market is definitely an acquired taste.

By Robert Venes