The surprise announcement that English sparkling wine specialist Nyetimber wants to acquire The Lakes Distillery may not have had scribes exactly scurrying to check that the date was 2 April, and not a day earlier – but it remains one of the more eyebrow-raising bev alc M&A plays of recent times.
Much of the online chatter surrounding the potential takeover of the Cumbria-based maker of whisky and other spirits has centred on the price offered for the business: £46.1m ($57.6m) or, including debt, a total enterprise value of £71m. But the price tag isn’t the only mildly curious detail here, nor do I think it’s the chief concern about the deal.
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Let’s dive into the detail first. The newly established Nyetimber Wine & Spirits Group is offering 116p per share in The Lakes Distillery plc. That makes £46.1m, but the total enterprise value of the deal is £71m, based on the company’s expected debt burden at 31 May 2024: £25.8m in financial debt, etc, less £0.9m in cash and cash equivalents.
The deal needs 75% shareholder approval to proceed and, at the time of the announcement it had 27.8%, including all directors with shares, plus Comhar Capital Ltd (11.4% stake), co-founder Paul Currie (5.6%) and David McLaughlin (5%).
As always with such takeover announcements, there are plenty of warm words from each side about the other. Lakes CEO James Pennefather said: “By joining the Nyetimber family of companies, The Lakes will benefit, in particular in terms of quality of production, brand marketing and routes to market.”
Meanwhile, Nyetimber described The Lakes as “the leading English distiller of premium quality single malt whisky and other premium spirits, differentiated by its characteristic Sherry-led house style, wood-forward approach and depth of flavour”.
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By GlobalDataBoth statements merit closer scrutiny. That description of The Lakes is both subjective and open to challenge from a number of England’s established and emerging whisky makers, from Cotswolds Distillery to High Peak via Norfolk’s The English Distillery. Leading in what sense?
And what about the second half of the sentence? It’s true that The Lakes has fixed on a robust spirit style and the use of highly influential ex-Sherry casks – thus giving it a clear identity – but “differentiated”?
It’s slightly lazy to suggest that The Lakes has simply transposed The Macallan’s modus operandi from Speyside to the Lake District – but only slightly. Production is recognisably Scottish in character, while other English distillers have taken a far more innovative and even iconoclastic approach.
Turning to Pennefather’s statement, I’m slightly curious about the suggestion that The Lakes will benefit from being owned by Nyetimber in terms of “quality of production”, unless that’s merely a veiled reference to the fact that more money will be pumped into that area of the business. I’d be rather surprised if an English sparkling winemaker was able to teach The Lakes team all that much about making good whisky (or gin).
Brand marketing? Yes, possibly, although I don’t think this is top of the list of issues that The Lakes needs to address right now. The packaging’s great, the location/provenance story is strong, the branding works. If Nyetimber can invest in making more of these undoubted attributes, fine.
It’s the route to market bit I’m most sceptical about. In the announcement, Nyetimber CEO and owner Eric Heerema makes much of his company’s “inherent understanding and strong relationships with the world’s leading luxury restaurants, bars and retailers”.
Well, yes. The creation of a luxury English wine/spirits tag-team has a neat symmetry about it, but I suspect it’ll take a bit more than having an in with a few fancy restaurants for The Lakes to achieve its avowed target of a 1% share of the global luxury dark spirits market by 2030.
And isn’t that a slightly odd aim anyway? First of all, how are we defining “luxury”? Super-premium-and above? And by whose measure? Good to be ambitious but I suspect the 1% figure is one of those targets that looks easier to reach in theory than it proves in practice. There’s a heck of a lot of whisky, Cognac, rum and aged Tequila out there.
Read between the lines of the announcement and it’s pretty clear that the sale of the business, in that context, had become pretty much a necessity
Rather than focusing on nebulous measures of success, the top priority for The Lakes is achieving financial stability to underpin its growth ambitions. Read between the lines of the announcement and it’s pretty clear that the sale of the business, in that context, had become pretty much a necessity.
Pennefather said he was “enthusiastic” about that 1% target but also admitted that it would require additional funding of £10m over the next three years. That’s not just to fund production increases, laying down stock and expanding internationally – it’s also to meet the company’s debt service obligations, with £3m needed “in the coming months”, according to the announcement.
That’s the nub of it. The board of The Lakes looked at alternative funding options, but it’s not the 2010s any more – capital raising right now is fiendishly difficult. As a result, “their conclusion was that there is a degree of uncertainty around The Lakes’ ability to fully fund the business as an independent entity without compromising the ten-year plan…”.
In that context, the Nyetimber offer, and its acceptance by The Lakes, isn’t so strange after all. But it would be nice to know whether there were other potential suitors out there – especially established whisky players for whom an English distillery might have been a nice bolt-on.
Is that £71m/£46.1m price tag – depending on how you slice it – a bit steep at 12.2 times net revenue? Maybe but this remains a rapidly growing business (YTD sales up 35% to January 2024), so the maths isn’t as straightforward as that multiple suggests.
Establishing whisky distilleries is perilous. It requires a sound strategy, patient investors and deep pockets. The Lakes has been in operation for almost a decade, and in the year to June 2023 it lost £1.3m (EBITDA) on revenues of £5.8m. That’s painfully slow progress.
You can have all the ambition in the world but it counts for nothing if you can’t fund it – and, beyond the headlines and feelgood quotes, that’s the chief reason why this apparently odd piece of M&A has come about.
