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Filipino company Alliance Global’s £430 million acquisition of the whole of the Whyte & Mackay subsidiary continues to show the strong appeal of the Scotch category in particular and international spirits brands in general to companies, especially from emerging markets. However, with few synergies for the company, the price looks like a very high price to pay.

The 578 million litre Filipino spirits market is dominated by cheap local products in the brandy, rum and gin categories. Alliance Global, led by its Emperador brand is the country’s leading player with a 43% volume share in 2013, thanks to its dominance of the brandy category.

Where Are the Synergies?

Whiskies, and particular Scotch are very much a niche premium category in the Philippines, due to the low disposable income of most consumers and very high taxes on imported spirits. This means that legal sales of blended Scotch in 2013 reached 230,000 litres, while single malt had volumes of less than 10,000 litres.

While volume sales of blended Scotch in the Philippines are expected to double between 2013 and 2018, it will still account for less than 1% of the country’s spirits consumption in 2018. That rate of growth could be accelerated by having the country’s biggest spirits company pushing the category, however, it is unlikely to do much until the huge structural problems facing international spirits brands face in the country are overcome.

Equally importantly there are few benefits for Alliance Global internationally, as Whyte & Mackay brands only have 1% of global blended Scotch volumes and 2% of single malts. The division lacks a major international presence and scale.

A Very High Price to Pay

As a consequence, the price the Filipino company has paid  x19 EBITDA, is very high. Back in 2007 United Spirits only paid x12 EBITDA to acquire the business. Some of the increase in the multiple can be put down to the company back in 2007 was far more focused on the low margin bulk Scotch business than it is today and the increased cachet of the category seven years later. However, United Spirits’ had a readymade market for the products in its domestic one, India, where it could use some of the bulk whisky to mix in to its premium Indian variants and also the huge potential of the Scotch category in this whisky consuming nation.

Superficially this compares favourably to the c.x25 times Distell paid for Burns Stewart in 2013. However, Distell already had a joint venture with Burns Stewart in Africa and a much stronger international presence and portfolio, especially in Africa, which has a taste for Scotch. All these things seem to be lacking for Alliance Global.

Nevertheless, it will be interesting to see what Alliance Global does with its new acquisition. Perhaps it hopes conditions will ease in its domestic market and make whisky consumption more attractive, but, unlike India, with a lack of consumer preference for whisky in the Philippines this could be a struggle. Perhaps it sees this as its last chance to gain an international presence, but with a lack of international scale, potential for its current brands, and international M&A opportunities this seems very ambitious. As a consequence it is likely that this acquisition will fail and, depending on the resources of Alliance Group, it would be no surprise if Whyte & Mackay is up for sale again in a few years time.

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