Monday’s announcement that Toronto-based Corby Spirit and Wine (CA:CSW.A, CA:CSW.B) will acquire 90% of Ace Beverage Group is music to the ears of long-time CSW stock holders.
Its Class A voting shares are down more than 14% year-to-date and 31% over the past five years. Its relative valuation, based on Fintel’s proprietary scoring model, ranks the stock at close to undervalued, putting name at 3,715 out of 22,816 companies analyzed.
In the $148.5 million deal, Ace Beverage’s shareholders will retain 10% of the company, valuing the entire business at $165 million. Corby has call options on the remaining shares exercisable in 2025 and 2028.
Exciting Choices
Ace Beverage Group was created In November 2020 when Ace Hill Brewing, known for its Ace Hill line of beers, acquired Iconic Brewing Company and its bevy of brands, including ready-to-drink (RTD) sensations Cottage Springs and Cabana Coast.
“Corby’s sustained growth relies on our ability to bring exciting choices to our consumers, by continually expanding into new and promising categories. We are extremely excited to partner with Ace and become one of the leading RTD players in Canada, as we believe the combined strength of our companies and people will unlock new opportunities,” said Nicolas Krantz, Corby’s president and CEO.
One of those “exciting choices” knocked Anheuser-Busch Inbev’s (US:BUD) Bud Light off the carb-free beer throne last year. And that was even before the Dylan Mulvaney ‘brew-haha’.
The merged company’s history dates back to 2013 when Ace Beverage co-founder and chief commercial officer Blake Anderson began brewing beer at the family cottage.
Transformative Deal
A decade later, Ace will become a subsidiary of Corby’s, which in turn, is majority-owned (51.6%) by Pernod Ricard (US:PDRDY), the French spirits giant. Pernod Ricard will provide Corby’s with a $120 million loan to pay for the acquisition. The loan is at arm’s length and market rates.
According to Corby’s presentation, the acquisition will increase the company’s annual operating revenue by 35%. In 2022, its adjusted revenue was $169.8 million, putting its pro forma revenue over $200 million in 2023. It will also be accretive to Corby’s operating margin and earnings per share 12 months after the transaction’s closing, expected by the end of September.
Drink-Ready Leader
In the latest 12 months, Ace sold more than 2 million cases in retail stores in Ontario and Canada. Cottage Springs accounted for 78% of its $57 million revenue.
The ready-to-drink (RTD) market in Canada has grown from $900 million in 2017 to $2.4 billion in 2022, a compound annual growth rate of 20%. It’s estimated to grow by 15% annually over the next five years to an estimated $4.8 billion.
Ace Beverage not only has the fastest-growing RTD brand (Cottage Springs) in Canada, but it also has the largest RTD market share at the Liquor Control Board of Ontario (LCBO), one of the world’s largest buyers of alcohol.
Over the past five years, the RTD category has lapped all others, including a 10-fold increase in volume relative to spirits, which is Corby’s core market.
Corby has a double-digit market share in all five geographic regions: British Columbia (15.2%), Western Canada (14.5%), Ontario (16.8%), Quebec (14.8%), and Atlantic Provinces (20.7%). Except for Ontario (11.8%), Ace has a low single-digit market share.
The acquisition is a win/win situation. Corby’s gets some of Canada’s top brands with younger drinkers, and Ace gets accelerated distribution of its products.
Eventually, investors will return to Corby’s stock. In the meantime, it yields a very attractive 6.1%.
This article originally appeared on Fintel
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