Diageo has agreed to purchase three year old Casamigos Tequila company for $1,000,000,000. Many are quick to point out Diageo is actually only paying $700 million for the company, the other $300 million is to be paid out based on performance earn-out over 10 years, reflecting the brand’s exceptional growth trajectory and upside potential.
Casamigos Tequila – Founded by Three Average Joe’s, Not
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Casamigos translates into “House of Friends.” The House of Friends tequila brand was founded in 2013 by George Clooney – movie icon and People Magazines two time winner of “Sexiest Man Alive”; Rande Gerber – who founded the Gerber Group that owns a chain of luxury bars, restaurants, and lounges across the US and Europe, oh and by the way, husband of supermodel Cindy Crawford; and Mike Meldman – real estate guru and founder of Discovery Land Co. In other words, just three average amigos.
“We are extremely excited to team up with one of the largest, most respected spirits companies in the world,” said Casamigos Tequila Co-founder, Rande Gerber. “What started from a friendship and an idea to create the best tasting, smoothest tequila as our own house tequila to drink and share with friends, has quickly turned into the fastest growing super-premium tequila. Casamigos has always been brought to you by those who drink it and we look forward to continuing that, working alongside the expertise and global reach of Diageo. Now even more people will be able to enjoy and experience our love and passion for Casamigos.”
They Didn’t Want to Be Distillers, the Distillery Made them Do It
According to a video interview with the brands co-founder Rande Gerber, they never intended to start a tequila brand, they were simply drinking too much tequila and the distillery called them out. By too much, we mean they were ordering 1,000 bottles of tequila a year until the distillery called them out on it.
“They said … either you’re selling it or you’re drinking too much,'” Gerber explains, adding that he and Clooney were told they had to get licensed and “get legit” in order to keep producing their beloved tequila.
“Our idea was to make the best-tasting, smoothest tequila whose taste didn’t have to be covered up with salt or lime, so we did,” said co-founder George Clooney. After working with the master distiller for several years and going through more than 700 samples and blind tastings with friends, Clooney, Gerber and Meldman got it right with Casamigos.
Diageo’s 2nd Shot of Tequila in 3 Years
This ins’t Diageo’s first tequila purchase. In 2014 Diageo swapped its Bushmills Irish whiskey label for full ownership of the high-end Don Julio tequila. Diageo agreed to a deal with the Beckmann family of Mexico to take the fifty percent of Don Julio it did not already own in exchange for its Bushmills Irish whiskey. Full terms of the deal were not disclosed but estimates at the time put the deal at about $704 million. Seems they like the $700 million mark. Once that deal was closed, the company invested another $400 million to expand tequila production and grow its agave farming capacity.
Casmigos Tequilas Rapid Sales Growth
A recent report in Ad Age shows that the Casamigos Tequila brand doubled sales volume from 38,000 nine-litre cases in 2014 to 80,000 cases in 2015. Diageo says Casamigos sold 120k cases in 2016, primarily in the US, and a CAGR of 54% in the last two years. The brand is on track to reach over 170k cases by the end of 2017.
Diageo says the Casamigo Tequila founders have built a brand that has thrived under their organic approach in reaching and expanding their “house of friends”, and they will continue to promote the brand and provide their leadership and vision. The founders will have continued involvement and active participation in the future success of Casamigos.
The transaction is expected to close in the second half of calendar 2017, subject to regulatory clearances. Diageo expects the transaction will be earnings per share (EPS) neutral for the first three years and will be economic profit positive in the fourth full fiscal year post-completion. The acquisition will be funded through existing cash resources and debt.
Ivan Menezes, Chief Executive of Diageo, said “We are delighted to announce this transaction today to extend our participation in the tequila category. It supports our strategy to focus on the high growth super-premium and above segments of the category. With the global strength of Diageo we expect to expand the reach of Casamigos to markets beyond the US to capitalize on the significant international potential of the brand. We look forward to building on the remarkable success of Casamigos to date.”
Deirdre Mahlan, President Diageo North America, commented “I am excited by the opportunity to bring Casamigos into the Diageo portfolio which allows us to further penetrate this exciting and high growth category. We believe Casamigos will play a complementary role alongside Tequila Don Julio. We look forward to partnering with Rande, George and Mike to realize the full potential of the brand.”
The Casamigos Story Video