Filling a critical void in its portfolio, Pernod Ricard announced Thursday that it would acquire a majority stake in bourbon maker Smooth Ambler Spirits for undisclosed terms.
Pernod Ricard is making the investment through its venture arm, NBV Investments, a subsidiary of Austin Nichols, which does business as Pernod Ricard North America. Delaware-based Austin Nichols is an affiliate of Pernod Ricard's U.S. subsidiary, Pernod Ricard USA of New York.
John Little, co-founder and head distiller of the Maxwelton, W.Va., target, will become its CEO, and John Foster will remain its director of sales and marketing. Little said in a statement that the investment "will enable us to introduce our premium craft spirits to many more consumers."
"One of our best markets is Kentucky," Foster told The Deal, a sister publication of TheStreet. "If we can sell bourbon in Kentucky, then we're doing something right."
He said that with Pernod Ricard's backing, coupled with Smooth Ambler's resources and distribution footprint, the company plans to increase in-house production threefold over the next year through the addition of 10 more employees, adding more fermenters, creating more mash and probably running existing stills 24 hours a day, four days a week.
"We're not trading out a little small, quaint still for some industrial still," he said. "We're going to keep making whiskey on the machines we've always used.
"We were looking to partner with somebody who could help elevate our brand to the next level," he continued. "They invested in us; it's not a complete buyout, and all the hands that were on deck are still on deck."
Foster added that a Smooth Ambler investor, former Freddie Mac CEO Greg Parseghian, "has been our in-house financial adviser since day one" and assisted with hammering out the deal terms.
The investment is Pernod Ricard's first addition to its portfolio after a series of divestitures this year. Sazerac, owner of many bourbon brands including Buffalo Trace, acquired Pernod's Paddy Irish Whiskey for undisclosed terms on May 3 and then purchased its FRÏS Danish vodka brand, also for undisclosed terms, on Sept. 30.
Just last week, Pernod Ricard, the world's second-largest spirits company, agreed to sell its Domecq brandy and wine business to Bodega Las Copas for undisclosed terms. Bodega Las Copas is a joint venture between Grupo Emperador Spain, the Spanish subsidiary of the Philippines' Emperador, and Spanish winery González Byass.
Paris-based Pernod Ricard's last acquisition was announced Jan. 29, when German affiliate Pernod Ricard Deutschland GmbH acquired a majority stake in Black Forest Distillers GmbH, which makes the upmarket Monkey 47 gin.
Premium American whiskey is a fast-growing spirits category. Brown-Forman (BF.B) , for example, reported on Wednesday that for the quarter ending Oct. 31, sales of its premium Woodford Reserve whiskey rose 19% year-to-date, while sales across the portfolio rose 3%.
Pernod Ricard reportedly was one of the bidders, along with LVMH Moët Hennessy Louis Vuitton, for craft whiskey maker High West Distillery, which Constellation Brands (STZ) acquired in October for $160 million. On Dec. 1, another French spirits giant, Rémy Cointreau, agreed to acquire Seattle whiskey maker Westland Distillery for undisclosed terms.
"I don't think we were surprised by those acquisitions," Foster said. "We've seen a couple over the years that have come as surprises. ... The next person could be a really small guy without all of the distribution and annual sales that some of us enjoy, but with a concept that a big company can get behind."
While Pernod Ricard owns Jameson, Powers, Redbreast, Green Spot and other Irish whiskeys through its Irish Distillers subsidiary, until now it lacked an American whiskey in its portfolio. Pernod Ricard sold its Wild Turkey bourbon to Davide Campari-Milano for $575 million in 2009.
Moët Hennessy still lacks an American whiskey, although it owns several Scotch whiskys as does Pernod Ricard.
Pernod Ricard Chairman and CEO Alexandre Ricard said in February 2015, shortly after becoming CEO, that the company didn't need a bourbon brand despite the spirit's explosive growth, but he did not rule out an acquisition in the category: "Should opportunities pop up, we'll clearly look at them; it's a question of the right opportunity, price and time."
In Thursday's statement, Ricard said of Smooth Ambler, "This investment illustrates perfectly our strategy of partnering with rising entrepreneurs sharing the same passion for authentic, high-quality brands."
Last May, after reorganizing the company co-founded by his grandfather, Ricard announced that "winning in the USA" was one of its top priorities: "We must win in this battleground to deliver our group [a] mid-term top-line 4% to 5% growth objective."
Jefferies International analyst Edward Mundy wrote in a Tuesday note that the Americas accounts for 29% of Pernod Ricard's 2016 revenue and 31% of its 2016 earnings before interest and tax. He estimated North America accounts for 21% of revenue and 28% of profit, with the U.S. making up 19% of group sales and 25% of group profit.
"Having lost share for many years, the company is on track to gain value share," he wrote.
One strategy it is pursuing in the U.S. is decentralization.
"Rather than treating the U.S. as one country, it has been carved up into more manageable markets," he wrote. "With California's economy larger than that of France, the application of Pernod's decentralized model with fewer layers and greater simplicity should drive increased agility and quicker decision-making; increased autonomy should lead to increased empowerment, which should drive performance."
Mundy also highlighted the July creation of Pernod Ricard's New Brand Ventures in-house incubation division, through which the Smooth Ambler investment was made.
JPMorgan Cazenove's Komal Dhillon pointed out Nov. 11 that "whiskies account for a third of spirits consumption globally and 40% of sales," with scotch accounting for 60% of whiskey consumption and nearly half of whiskey sales.
"Bourbon is America's whiskey," Foster said. "It's indigenous. It's on the list of American things: apple pie and jazz and blue jeans and baseball and bourbon. As the whole world starts to care about where things are from, maybe there's a little factor in the U.S. that bourbon is our whiskey, in addition to it being delicious."
Pernod Ricard anticipated the Smooth Ambler investment would close early next year.
Pernod Ricard representatives could not be reached for comment.