🧵 Deep Dive: MGP's $215.8M acquisition of Penelope Bourbon

The acquisition enhances MGP's presence in the growing American Whiskey category, expands its portfolio of premium-plus price point brands, and leverages Branded Spirits national distribution platform

🗒️ Company.

Penelope Bourbon was crafted and created in a classic American tradition – to celebrate an impending birth of a child. In 2018, Mike Paladini and his wife, Kerry, found out they were expecting a baby girl, Penelope. To commemorate this occasion, Mike quickly realized he wanted to create a spirit that embodied the daily joy of celebrating life’s pleasures – big and small. Teaming up with his close childhood friend and neighbor, Danny Polise, they set out to discover and produce a Straight Bourbon Whiskey everyone could appreciate and enjoy. A company was born.

🥃 Product.

Penelope’s core expressions, Four Grain, Barrel Strength, Architect and Toasted Series, have received over 30 combined awards and industry accolades.  Most recently, the brand won Double Gold and ‘Best of Class’ at the 2022 San Francisco World Spirits Competition, and was awarded three Double Platinum Medals – along with the title ‘Blender of the Year’- by the ASCOT Awards (2022). In addition to its cornerstone expressions, Penelope continues to introduce new and innovative limited releases within its Cooper Series, Private Select and Founders Reserve lines. Today, Penelope Bourbon is sold in over 30 states and 4 countries.

👨👩 Team.

CEO & Founder, Michael Paladini is also the Founder of Bear Mattress, a Brooklyn-based bed-in-a-box company. He previously worked in Employee Communications at Dynamic Signal, Director of Talent Acquisition at SmartRecruiters and a Director at Buddy Media/Salesforce.

The company has 14 employees on LinkedIn, so the 15 below is likely all FT employees at time of acquisition.

💲 Sales

While MGP’s announcement didn’t include any financial data / valuation multiples, Nielsen off-premise data shows that Penelope had ~$1.6M in Q1 2023 sales, which is up ~104% when compared to Q1 2022 sales. This compares with ~$4.1M in 2022 sales, which grew ~203% over 2021. What we’re missing here is on-premise sales data to try and get a fuller picture of sales.

💵 MGP Acquisition for $215.8M ($105M at close, $110.8M earn-out)

MGP Ingredients, Inc. (Nasdaq: MGPI), a leading provider of distilled spirits, branded spirits, and food ingredient solutions, announced that Luxco, Inc. subsidiary has reached a definitive agreement to acquire 100% of the equity of Penelope Bourbon. The acquisition includes all intellectual property and inventory of bottled product, as well as Penelope’s aging whiskey inventory on a debt-and-cash-free basis. The upfront consideration is $105.0 million in cash to be paid at closing, with further potential earn-out contingent consideration of up to a maximum cash payout of $110.8 million measured through December 31, 2025 if certain performance conditions are met, reflecting the brand’s current growth potential. The acquisition is expected to be financed using MGP’s existing revolving credit facility and cash on hand.

Transaction Highlights:

• Enhances presence in growing American Whiskey category

• Expands portfolio of premium-plus price point brands

• Leverages Branded Spirits national distribution platform to extend Penelope’s reach

• Current MGP Distilling Solutions customer

• Expected to be immediately accretive to Branded Spirits segment gross margin and consolidated adjusted basic earnings per share after close

• Anticipated total cost synergies of approximately $5 million by December 31, 2025

• Transaction is anticipated to close in June 2023

📈 MGP Strategy

MGP noted in its Q1 2023 Investor Presentation (below) that M&A will continue to be an important lever to increase their capabilities, margin up the portfolio, and accelerate growth in Branded Spirits. Smoke Wagon was also rumored to be a target as the brand is also the largest single purchaser of barrels from MGP outside of Diageo (Dickel and Bulleit), Pernod Ricard (Smooth Ambler) and Constellation Brands (High West and Nelson’s Green Brier) which meant that they could have benefitted from selling more cases immediately as well as having a huge supply of new-make bourbon ready to use in the future.

🧾 MGP Investor Presentation (Q1 2023)

Q1 2023 compared to Q1 2022

• Sales increased 3% to $201.0M

• Gross profit decreased 3% to $69.8M (34.7% GM)

• Operating income decreased 17% to $41.6M

• Net income decreased 17% to $31.0M

• Adjusted EBITDA decreased 15% to $47.1M

• EPS decreased to $1.40 per share from $1.69 per share

• Diluted EPS decreased to $1.39 per share from $1.69 per share

2023 Outlook

• Sales are projected to be in the range of $815–$835M

• Adjusted EBITDA is expected to be in the range of $178–$183M

• Adjusted basic EPS is forecasted to be in the $5.05–$5.20 range, with basic weighted average shares outstanding expected to be ~22.2M at year end

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Disclosure: Highly Objective is a Beverage and Cannabis blog curated by Dai Truong, who leads Cannabis Investment Banking and Total Beverage Business Development at Arlington Capital Advisors. Third-party information presented here and links to third-party content are for informational purposes only and are not intended as a recommendation, offer or solicitation for the purchase or sale of any financial instrument, security or investment.  The information provided is not warranted as to completeness or accuracy and is subject to change without notice. Linking to third-party sites in no way implies an endorsement or affiliation of any kind between Arlington Capital Advisors, LLC, or its affiliates and any third party.  The information in this blog constitutes my own opinions (and any opinions posted by guest bloggers from time to time) and it should not be regarded as a description of services provided by Arlington Capital Advisors, LLC or any affiliate.