M&A Update | Craft Beverage 2017

Craft spirits market trends Many believe the craft spirit industry is currently positioned where the craft brewing industry was 10 years ago. According to the American Craft Spirits Association, there were 1,589 craft distillers (defined as U.S. licensed producers that have removed less than 750,001 proof gallons from bond) in the United States as of August 2017, up 20.8 percent from the same period last year. The new entrants to the market focus on whiskey production, but a significant amount also focus on vodka. The emphasis of the craft distillers is on ultra-premium bourbon and variations of whiskey that can be sold at high margins. Craft sprits producers are estimated to have a 3.8 percent market share of the total spirits market measured in retail value. By comparison, craft brewers have a 22 percent share of the total U.S. beer market measured in retail sales. Based on a survey done in its Craft Spirits Data Project by the American Craft Spirits Association, many retailers and wholesalers see the potential for craft spirits to perform in line or better than craft beer over time. Industry deal-making shows the large spirits distillers (refer to Comparable public company analysis) are paying greater attention to the craft spirits category, with various acquisitions closed in the past few years (see Tables 3 and 4). While most small distillers are not considering exit strategies yet and are instead focusing on volume growth and portfolio diversification, wholesalers surveyed by the American Craft Spirits Association believe that the majority of craft spirits producers will be acquired by larger suppliers.

Source: American Craft Spirits Association, IBISWorld, Baker Tilly Insights

Table 3: M&A activity with reported transaction value and multiple data – Distilled spirits producers

Transaction Comps

Enterprise

EV

EV

EV

Date

Target Company

Transaction Overview

Acquiring Company

Value

Revenue CM EBITDA

Heaven Hill Brands entered into an agreement to acquire T.J. Carolan & Son Ltd from Davide Campari-Milano S.p.A. (BIT:CPR) for an enterprise value of approximately €140 million on July 24, 2017. As part of the transaction, Gruppo Campari and Heaven Hill Brands will enter into a multi-year exclusive distribution agreement, under which Gruppo Campari will continue to distribute the Carolans and Irish Mist brands in the international markets outside the United States. Eastside Distilling, Inc. acquired 90% stake in Big Bottom Distilling for $0.12 million on May 1, 2017. Eastside Distilling issued 84,286 shares as consideration. Big Bottom Distilling will be maintained as independent entity underneath the operational umbrella of Eastside Distilling. Davide Campari-Milano S.p.A. agreed to acquire CK3 LLC for €54.1 million. The purchase consideration also includes working capital and assumed liabilities of €3.1 million. The terms of the transaction also include an earn-out payable upon the achievement of certain incremental sales volumes according to agreed volume targets. The deal leaves cash-on- hand and other assets on CK3's balance sheet, resulting in approximate proceeds of $70 million (€64.9 million) at closing to BULLDOG's shareholders. Societe Des Produits Marnier Lapostolle Societe Anonyme produces and sells liquors globally, including wines, spirits, cocktails, cognacs, and others. The company was founded in 1827 and is based in Paris, France. The BenRiach Distillery produces and sells single malt whiskies and operates a network of stockiests and outlets in the U.K. and internationally. The company was founded in 1898 and is based in Edinburgh, U.K. The purchase will include brand trademarks, three malt distilleries, a bottling plant, and the company's headquarters in Edinburgh. Hitejinro Holdings sold a 4.09% stake in Hitejinro Co. for $70 million. Hitejinro Co produces and sells whiskey, beer, wine, soju, and other alcoholic beverages in South Korea under various brands. The company was founded in 1924 and is based in Seoul, South Korea. Diageo produces, markets and sells various alcoholic beverages, including many premium brands such as Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray, and Guinness. The company was founded in 1886 and is based in London, UK. The transaction involved US and UK wine operation assets.

Heaven Hill Brands

07/24/17

TJ Carolan & Son Ltd

$165.0

4.2x

n/a

n/a

Eastside Distilling, Inc. (NasdaqCM:EAST)

05/01/17

Big Bottom Distilling, LLC

$0.1

0.7x

n/a

n/a

Davide Campari-Milano S.p.A. (BIT:CPR)

02/02/17

CK3 LLC

$70.0

5.7x

13.6x

n/a

Societe Des Produits Marnier Lapostolle Societe Anonyme (ENXTPA:MALA)

Davide Campari - Milano SpA (BIT:CPR)

06/27/16

$716.1

4.3x

n/a

21.1x

Brown-Forman Corporation (NYSE:BF.B)

The BenRiach Distillery Company Limited

06/01/16

$414.5

6.9x

n/a

24.7x

Hitejinro Co., Ltd. (KOSE:A000080)

Hitejinro Holdings, Ltd. (KOSE:A000140)

04/01/16

$2,609.5

1.6x

5.5x

11.8x

Diageo plc (LSE:DGE) - US and UK Wine Operations

Treasury Wine Estates Limited (ASX:TWE)

01/01/16

$600.0

n/a

n/a

7.9x

Mean

$653.6 $414.5

3.9x 4.2x

9.5x 16.4x 9.5x 16.5x

Median

Source: Capital IQ (February 26, 2018)

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