Diageo Announces Acquisition of Aviation American Gin

Summary

• British households might have felt the pinch, but food and drink are among the things that people refuse to cut back on, which has been good for alcohol producers
• Diageo, the giant alcohol company announced its agreement to buy a gin brand, Aviation American Gin for $610 million
• It will also be acquiring Davos Brand’s portfolio consisting of Astral Tequila, Sombra Mezcal and Tyku Sake

The global food & beverage industry includes various online and offline food chains. The industry includes the companies working in processing raw food materials, packaging, and distribution which include prepared foods and packaged foods, along with alcoholic and non-alcoholic beverages. Factors influencing the growth of the food & beverages industry before Covid-19 pandemic, include the rise in the number of on the go consumers and increased adoption of ready to eat food. Steady increase in population and per capital income, and changing lifestyle were other growth-enhancing parameters for the food & beverages industry. However, the shutdowns of the restaurants and other seating areas have impacted the industry negatively.

In recent times, British households might have felt the pinch, but food and drink are among the things that people refuse to cut back on. Typically, households spend a sizeable amount every year on groceries and beverages. Food and drink accounts for 17 per cent of the UK’s total manufacturing sector and employs up to 400,000 people. With figures like these, it’s no surprise that the food and drink industry is so coveted. Probably this is the reason why even during tougher times, the British food and drink industry has performed reasonably well.

On 17 August 2020, Diageo, the giant alcohol company announced its agreement to buy a gin brand, Aviation American Gin, co-owned by Hollywood actor Ryan Reynolds through the acquisition of Aviation Gin LLC and its majority owner, Davos Brands LLC. The deal is worth $610 million (€513 million), including an initial payment of $335 million and a further potential consideration of up to $275 million based on the performance of Aviation American Gin over a period of ten years. The move will also see Diageo acquiring Davos Brand’s portfolio consisting of Astral Tequila, Sombra Mezcal and Tyku Sake.

The news of Diageo's acquisition came just two weeks after the manufacturer of Johnnie Walker whisky and Smirnoff vodka stated that their yearly profit had declined by almost fifty per cent as a result of closures of pubs and restaurants, cancellation of sporting events, and a plunge in duty free purchases that impacted the global demand.

Ryan Reynolds is said to be retaining a stake in the gin brand as part of the acquisition. He became an owner of Aviation Gin because he loves the taste of Aviation American Gin more than any other spirit. He is also very excited for this new beginning.

The Chief Executive of Diageo, Ivan Menezes expressed his joy as he announced the above-mentioned transaction, providing his supports for participation in the super premium gin segment in the United States. He also added that the company was confident that Aviation American Gin will continue to shape and drive the growth of super premium gin in North America, and also expressed his eagerness to work with Ryan Reynolds and the Davos Brands team to accelerate future growth.

Financial Updates

On 4 August 2020, Diageo PLC released its preliminary results for the year ending 30 June 2020. The company reported of consistent performance in the first half of the year, however the second half was significantly impacted by Covid-19. The reported net sales were recorded as £11.8 billion, which were down 8.7 per cent, resulting in the organic declines. The reported operating profit declined by 47.1 per cent to £2.1 billion, because of the exceptional operating items and organic net sales. There was a decline in the organic net sales and organic volumes by 8.4 per cent and 11.2 per cent, with growth in North America more than offset by declines in all other regions. The organic operating profit plunged 14.4 per cent due to the decline in volume, cost inflation and unabsorbed fixed costs that were partially offset by short term cost reductions and ongoing productivity benefits. The basic EPS (earnings per share) was recorded as 60.1 pence, which decreased by 54.0 per cent primarily due to exceptional operating items. The final dividend recommended by the company was of 42.47 pence per share.

Diageo PLC (LON:DGE) stock was trading at GBX 2,640.00 on 19 August 2020, at 8:50 AM, up by 0.38 per cent from its previous close of GBX 2,630.00. The 52-week low/high price was GBX 2,200.00/3,625.50. It was having a market capitalisation (Mcap) of £61,475.17 million. The volume traded at the time of reporting was 294,423. The company recorded a negative return on price, which was 17.37 per cent on a YTD (Year to Date) basis. The earnings per share were recorded at 1.31.

About Aviation American Gin

Aviation American Gin is an American style gin, crafted with a hint of botanicals, with subtle juniper notes, delivering a smooth balanced flavour profile. The leadership of its majority owner, Davos Brands, and the creative direction of co-owner Ryan Reynolds, has helped the brand to flourish.

Aviation American Gin has been the second largest and one of the fastest growing brands within the super-premium gin segment in the United States. In 2019, it reported 100 per cent growth in sales volumes as demand for super-premium gin continues to surge in the US. It has been successful in contributing 40 per cent of super premium gin segment growth.

About Davos Brands

Based in New York, the Davos Brands aims at building and developing the highest quality, best in class spirits brands that create a meaningful and valuable connection with consumers. They achieve this through teamwork, passion, innovation, entrepreneurial spirit, and relentless perseverance. The luxury portfolio of the company includes owned brands Aviation Gin, TYKU Sake, Sombra Mezcal, & Astral Tequila.

To sum up, Diageo PLC had been performing well in the first half of the year, but the Covid-19 pandemic has impacted the financial performance for the second half of the year. With this acquisition, the company is looking forward to attain a strong position in the super premium gin segment.