Scotch whisky company reveals acquisition talks
THE chief executive of Scotch whisky distiller Loch Lomond Group has revealed the company is currently assessing two potential takeover targets.
Colin Matthews, who led the £210 million acquisition of Loch Lomond from the Bulloch family in 2014, said the private-equity-backed company is open to acquiring brands and distilleries as part of its growth strategy.
But he said it would only consider deals which would make a sizeable difference to Loch Lomond’s scale and help expand the business.
Speaking in today’s Herald, the former managing director of Imperial Tobacco, said: “We would like to [to deals]. We are always keen to look at stuff. We are looking at a couple of things just now actually. There are opportunities which come across our desk fairly regularly and we look at it and say: is it value enhancing, is it value creative for our business? How much time and effort goes into it? Is it the right size?”
The Scotch whisky industry has been comparatively quiet on the acquisition front in recent times. Much of the investment currently being made by distillers is focused on expanding capacity or re-opening mothballed sites.
The most notable deal of 2017 came when industry veteran Billy Walker led a consortium to acquire Speyside’s Glenallachie Distillery from Chivas Brothers. Mr Walker had previously sold the Benriach Distillery Company to Jack Daniel’s owner Brownforman for £285m in 2016.
Japanese giant Suntory ramped up its Scotch whisky presence in 2014 when it acquired Beam Inc, owner of Laphroaig and Teacher’s.
Mr Matthews said: “I suppose you could go and add on 100 little brands, but I would prefer to have a look at brands which have some sort of scale. Starting from scratch, we can do that ourselves.”
Meanwhile, asked for his views on Brexit, Mr Matthews said he is optimistic that the UK negotiators will do the “right thing” for the country. But he said the best outcome will only be achieved if the voice of business is heard.
COLIN Matthews is keen to talk about the new email signature which he and colleagues at Loch Lomond Group now sign off their communications with. It illustrates that the Scotch whisky distiller’s Loch Lomond brand is now an official sponsor of The Open, one of the most prestigious events in world sport.
The few words may not look like much. But they neatly capture the progress which Loch Lomond has been made since Mr Matthews led a £210 million buyout of the company in 2014, in a deal backed by private equity group Exponent.
In that time around £25m has been invested to reinvigorate the business. Chunky sums have been poured into ramping up its distilling, maturation and bottling capacity, no to mention overhauling the way its whisky, vodka and gin brands are presented.
The senior leadership team has been transformed, and steps have been taken to scale up and re-order the distribution of its presence in international markets. The brands, including the Loch Lomond and Glen Scotia whiskies, are now on sale in around 125 markets, as well as in duty free stores worldwide.
The fact that Loch Lomond, which was owned previously by the publicity-shy Bulloch family, is now linked to The Open would seem to be the icing on the cake, so far at least. But more on that later.
“We’re all absolutely thrilled with what we have managed to achieve, really,” said Mr Matthews, a former managing director of Imperial Tobacco. “There were some good elements to the business when we got it, and there were some elements that didn’t exist.
“In total I have put in something close to £25m as pure investment into the business, which is not insignificant for a relatively small business.
“That type of investment shows our commitment and ambition.”
The investment would appear to be paying dividends. The most up to date accounts for Loch Lomond show that it turned over £47.3m in the year to September 30, 2016, but Mr Matthews said sales are now growing much faster. While he did not disclose specific figures, he said its international branded business grew by nearly 60 per cent in 2017, and now represents around 30% of the group’s overall sales. He describes this as a “major step change” since the time of the acquisition, when the group’s international brand activity was “almost non-existent”.
That progress is partly down to a reinvigorated marketing approach. In common with other players in the Scotch whisky industry, Loch Lomond has been keen to play up the individualism, heritage and quality of its brands.
“Authenticity is really important today, having a real story,” Mr Matthews noted. “People like craft. They don’t want necessarily to be buying into the biggest brands in the world. They like to be individualistic. I think we can say we are almost craft in terms of what we can do.
“And I’m absolutely convinced we are almost certainly the most versatile in the whole industry, because of our different types of stills and maturation [methods]. We can produce lots of different flavours and we do; we let the consumer decide what they like best.”
Much of that versatility is down to the fact two of its distilleries – one producing malt and the other grain whisky – sit side by side in Alexandria. It explains why the company, which also owns the Glen Scotia Distillery in Campbeltown, can release both single malt and blended Scotch whisky under the Loch Lomond name.
Mr Matthews admits it can be confusing for some consumers, initially at least. “But as soon as you explain to them the difference between single malt and blended whisky, they completely get it,” he said.
The more “boutique” Glen Scotia Distillery, meanwhile, is now a regular port of call for whisky tourists en route to Islay. Mr Matthews said the Glen Scotia malt is doing well international markets, notably in duty free stores at Glasgow and Edinburgh airports.
New distribution agreements in key markets are also bearing fruit. Partners include the Stoli Group USA, which is helping to widen its distribution across the Atlantic, the Coles retail giant in Australia, and Cofco in China, which aims to be that country’s biggest player not only in spirits but in beer and wine too.
Japan, Taiwan and Russia are other strong markets, Mr Matthews said, adding that business is brisk in the UK too. It is certainly helping that the prospects for Scotch continue to look bright around the world, especially for single malts. That said, Mr Matthews thinks the sector could do with being a little bolder.
“Single malt Scotch whisky is growing at roughly 15% across the world year on year,” Mr Matthews said. “Blends are relatively flat but doing well.
“And I think the big thing for Scotch whisky going forward, if it is to compete with American, Japanese, and Irish whiskey, is the ability to innovate. Sometimes Scotch whisky is held back by tradition.”
In that regard, he suggested there is scope for distillers to collaborate more. While the heritage and tradition of whisky should always be cherished, he is “not adverse to new techniques which helps us make whisky even greater.”
In the meantime, it is the distiller’s new relationship with The Open which is causing the most excitement.
Mr Matthews reckons the R&A, custodian of The Open, found the approach taken by the distiller to the deal as refreshing. “[We said] if it’s a transaction we are doing, we are not interested. If you (R&A) tell me it’s genuine partnership, and you will look after our interests and present opportunities over the next five years, we would be thrilled to get involved with you.”
That means the distiller will be leveraging its association with The Open all year round, including at the Rioch Women’s British Open. And it will be involved when The Open returns to St Andrews in 2021 for its 150th anniversary.
“People have really sat up and taken notice of our business now,” Mr Matthews said. “By being involved in The Open Championship, people can see our true ambition and our determination to succeed.”