FT.com / Retail & Consumer – Diageo’s complicated courtship

Complications beyond the usual reductive calculus of M&A apply to buying famous family businesses such as Jose Cuervo, the Mexican tequila company. Diageo has been wooing the owning Beckmann family since striking a deal to distribute its premium cactus spirit in 2003. Now there is growing speculation that the Beckmanns may be willing to sell. But you would need to be an agave moth on the wall at a family gathering to confirm that.
It is unlikely that the Beckmanns would countenance a cut-throat auction involving financial bidders. But that would not make Jose Cuervo a steal. A family that has stayed in business for some six generations does not cash out cheaply. The scarcity of financial data on Jose Cuervo makes the price hard to call. But on a 15 times underlying earnings multiple mooted by Investec’s Martin Deboo, a figure well above $3bn is possible. Shares may be part of the consideration. Likely riders to a sale agreement include guarantees protecting heritage and jobs in Tequila, Mexico – as with champagne, the place and the drink are eponymous.

Jose Cuervo would slot seamlessly into the Diageo portfolio alongside other premium brands such as Johnnie Walker whisky and Smirnoff whisky. The group is well-positioned to exploit a growing thirst for fancy drinks in emerging economies. But Jose Cuervo may need some bolstering in the US. Here, the brand’s dominant market position is under attack from up-and-coming Patron tequila. This is the creation of bold US entrepreneur John Paul DeJoria. No family heritage complicates his decision-making.


via FT.com / Retail & Consumer – Diageo’s complicated courtship.