Campari Deal Shows Canadian Allure Amid Whiskey Revival

Davide Campari-Milano SpA (CPR)’s acquisition of Canada’s largest independent distiller highlights the appeal of the country’s whiskey amid a revival in demand for the brown spirits.

Campari agreed to buy closely-held Forty Creek Distillery Ltd. for C$185.6 million ($167 million), the Milan-based producer of Skyy vodka and Wild Turkey bourbon said in a statement yesterday. The deal is Campari’s third acquisition in two years and the first in Canada, according to data compiled by Bloomberg.

Growth in U.S. spirit sales is being led by whiskies and bourbons, which are outperforming vodka, said Kenneth Shea, a Bloomberg Industries analyst. Canadian whiskey is a growing market segment and its versatility makes it a good “stepping stone” for drinkers entering into brown spirits, Campari Chief Executive Officer Robert Kunze-Concewitz said on a conference call yesterday.

“There are a lot of fans of Canadian whiskey in the U.S.,” Shea said yesterday in a telephone interview. “This is a pretty savvy acquisition for Campari.”

Canadian whiskey is perceived as a higher-quality or premium product, which adds to its appeal, Shea said. Consumers may be choosing whiskey after facing vodka “fatigue” amid a surge of different varieties including fruit flavors.

“Amongst alcoholic beverages in general, you’re seeing a trend where people are drinking less but drinking better,” he said. “The baby boomers are getting older and they don’t drink beer as much as they used to.”

Korea Boost

Spirits annually represent almost 70 percent of the total value of all Canadian alcoholic beverage exports, more than the combined value of beer, cider and wine shipments, according to Spirits Canada, an industry group. Canadian spirits sales rose 20 percent to more than C$500 million in 2013, the group said.

Canadian producers are also poised to receive a boost after South Korea agreed to eliminate a 20 percent tariff for Canadian whiskey imports and formally recognized “Canadian Whisky” and “Canadian Rye Whisky” in a free trade agreement between the two countries announced March 11.

South Korea “represents a very significant 50 million plus-strong consumer market, a spirits-focused alcohol social culture and is amongst the top 10 largest global whiskey markets,” Spirits Canada said in a statement this week.

Campari is paying about 14.5 times Forty Creek’s estimated 2014 earnings, Campari said. Five proposed, pending and completed takeovers of wine or spirits companies announced in the past five years valued the targets at a median of 15 times earnings before interest, taxes, depreciation and amortization, according to Bloomberg data.

Global Reach

Forty Creek, based in Grimsby, Ontario, was founded in 1992 by owner John Hall, who will remain at the company as whiskey maker and chairman. The company had sales of C$34.2 million in the fiscal year ended March 31, 2013 of which Forty Creek Whisky represented 62 percent. Sales are forecast to rise 16 percent this fiscal year. Its other products include vodka, liqueur and spiced rum.

Hall said he looked for a buyer with both North American presence and global clout following increased international demand for the whiskey, which is only available in Canada and the U.S. for now.

“Whiskeys are growing, they’re having a whole new renaissance, a revival,” Hall, 64, said by phone yesterday. “I am the largest independent distiller in Canada but I didn’t have that global reach.”

Forty Creek has expanded to more than 75 employees from 12.

“We’ve continued to grow in double digits for the past ten years,” he said. “I’m sure with this added support from Campari that we will be expanding again.”

To contact the reporter on this story: Liezel Hill in Toronto at lhill30@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net Jacqueline Thorpe

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