LONDON (Bloomberg) - George Clooney may be the face of fancy coffee, but it's in premium tequila that he just hit the real jackpot.
Diageo agreed to acquire fast-growing tequila brand Casamigos, co-founded four years ago by Clooney, for as much as US$1 billion (S$1.4 billion). The deal expands the London-based distiller's lineup in a fast-growing category, where it already owns the Don Julio, DeLeon and Peligroso brands.
The purchase will be Diageo's biggest since its US$3.2 billion acquisition of United Spirits in 2014. After that deal boosted its presence in India, the owner of the Smirnoff brand is moving to strengthen its American business, which has returned to growth after a difficult stretch following a slowdown in vodka sales. Meanwhile, tequila volume in the United States more than doubled from 2002 through 2015, according to the Distilled Spirits Council.
An initial consideration of US$700 million will be followed by a further potential US$300 million based on a performance-linked earn-out over 10 years, Diageo said in a statement Wednesday.
"The price looks high", Trevor Stirling, an analyst at Sanford C. Bernstein said by phone. "So much of this depends on their belief in the growth rate of this brand."
Casamigos is on track to sell 170,000 12-bottle cases this year, Diageo North America president Deirdre Mahlan said on a call. The spirit, which is growing 40 per cent to 50 per cent annually, sells for US$45 to US$55.
Brands growing at such a pace are "notoriously challenging to value under traditional methods", Mahlan said.
Clooney, better known for his role in movies such as Ocean's Eleven (2001) and as a pitchman for Nespresso coffee, created Casamigos in 2013 with developer Mike Meldman and entertainment entrepreneur Rande Gerber, who's married to model Cindy Crawford. The tequila is made by an undisclosed partner in Mexico.
Diageo and its rivals have been expanding their lineups of tequila and mezcal, which is also produced from the agave plant. Pernod Ricard SA this month agreed to acquire the Del Maguey mezcal brand, following a distribution agreement by Diageo with Mezcal Union signed in February 2016.
The Casamigos purchase "supports our strategy to focus on the high growth super-premium-and-above segments of the category", Diageo chief executive officer Ivan Menezes said in the statement. "With the global strength of Diageo we expect to expand the reach of Casamigos to markets beyond the US to capitalise on the significant international potential of the brand."
The deal will be funded through a combination of cash and debt, and Diageo expects it to have limited impact on earnings per share for the first three years and to be accretive thereafter. Diageo said the agreement, which was reached without a formal auction process, should close in the second half.