Campari’s unique approach to deal making has taken it into the liquor sector’s premier league. A new strategy looks inevitable, which is mixed news for investors.
Davide Campari-Milano, the maker of Aperol aperitif and Grand Marnier liqueur, moved its registered office to the Netherlands this month. Its headquarters and stock-market listing will stay in Milan, but a new Dutch base lets Campari tinker with its governance rules in ways that aren’t possible at home. It will now give extra voting rights to investors the longer they hold the shares, tightening the grip of the company’s controlling Garavoglia family.
The move will allow Campari to issue more equity for acquisitions without diluting the family’s control. In a decade, it should be able to raise up to €8 billion ($9 billion) at the current share price—an increase from around €2.8 billion today, based on Jefferies calculations. It could decide to use the extra firepower to buy assets with exposure to China, where it currently makes less than 1% of sales, or Asia more widely. Fast-growing Tequila brands are another possibility.
Whatever it does with its new legal structure, the change suggests the company is moving away from its sweet spot. Historically, Campari has proven good at buying small drinks companies and turning them into global brands. When it purchased Aperol in 2003, the orange aperitif was a regional Italian drink generating around €23 million in annual sales. Last year, its revenue was €330 million, and it is growing rapidly in the U.S.
it is a similar story at Espolon tequila, which was bought in 2008 for an all-in price of $28 million. Data from IWSR Drinks Market Analysis show that it now sells as many bottles globally as Casamigos—the tequila company founded by actor George Clooney for which U.K.-based liquor company Diageo paid a hefty $1 billion in 2017. Spotting promising drinks early on means that Campari has paid multiples of five to 14 times earnings before interest, taxes, depreciation and amortization for targets, rather than the industry average of 17 times.
Campari’s record with larger deals is still unproven. Since handing over almost €500 million for control of Grand Marnier four years ago—its biggest purchase to date—the brand’s sales have been patchy.
Still, the company probably has little choice but to spend big if it wants to expand in emerging markets, which currently account for just one-fifth of its revenue. Campari’s impressive growth in recent years also makes it harder to move the needle with the kind of bolt-on acquisitions it usually favors. To date, all of its purchases have been for well below $1 billion, but its enterprise value is now approaching €10 billion.
The global liquor market also could be set for consolidation: The world’s top five liquor companies control 22% of global volumes, according to data from IWSR. That compares to 55% for beer.
Campari has richly rewarded its investors over the years. Since 2005, the company has delivered total annualized returns of 13%, ahead of competitors Rémy Cointreau, Diageo and Pernod Ricard. But it might need a new recipe for success as its deals grow in size.
Write to Carol Ryan at carol.ryan@wsj.com
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