SSKI - Event update: United Spirits - Acquisition of Whyte & Mackay

The wait is over. United Spirits (USL), the third largest spirits manufacturer in the world, in order to strengthen its foothold in the international alcohol industry, has acquired the world's fourth largest scotch manufacturer, Whyte & Mackay (W&M) for GBP 595mn ($1.18bn). The acquisition comes at 3.7xFY06 revenues and at 12xEV/EBITDA, a near 25% discount to comparable transactions in the space (Moet Hennessy acquired Glenmoragie at 24xEV/ EBITDA). This acquisition will add the world's largest grain distillery (capacity of 40mn liters), 4 malt distilleries in Scotland (capacity of 12mn liters), a bottling unit in Grangemouth and bulk scotch inventory (115mn liters of maturing scotch) to USL's portfolio. Along with these, W&M also owns a number of strong brands such as Isle of Jura, Dalmore single malt, Vladivar vodka and its flagship blended scotch, Whyte and Mackay. We understand that W&M revenues stood at US$320m and EBITDA at US$99m and the value of its maturing inventory of 115m is estimated to be valued at US$750m.

For USL, a US$1.2bn acquisition is clearly going to strain its balance sheet in the near term. Most of the acquisition is likely to be debt funded. USL will be raising $640mn on the strength of the target assets (W&M) with no recourse to USL and the balance on the overseas SPV of USL. Furthermore it may also offload its 2.3mn shares of treasury stock.

The alcohol industry in India, over the past 2 years has been witnessing an uptake in the alcohol industry. With an increase in disposable incomes and declining propensity to save, the Indian population is moving towards better quality. Observant to a 26% volume growth when the rest of the industry is growing at 12%, the scotch industry in India is clearly at a nascent stage.
We have always liked USL's business and believe that the acquisition only enhances the abilities of USL to take a shot at becoming a global leader in the space. Maintain Outperformer and will be introducing consolidated numbers shortly, accruing for W&M acquisition.