MGP is a well known name in the distilled spirits world. The company is a massive distilling and aging operation that “white labels” their product, sending it around the United States to other companies who use it in their own products which they then sell under their own brand. Today’s announcement that they are buying Luxco is huge, for two reasons.
The first reason that this is so newsworthy is that it indicates the size and financial capability that MGP has gained. Especially with all of the new companies on the market who source their spirits from MGP’s stills, it’s no wonder that the company has made a large enough chunk of change that they can go on a buying spree. It’s also is a good indicator that the whiskey market is strong, with enough demand to support this kind of a move.
The second reason this is interesting is because this is a significant step for MGP, moving from a primarily “white label” spirits producer to one that has its own popular and well-established brands. You can check out all the reviews we’ve done of Luxco spirits here — the list includes some heavy hitters like Ezra Brooks and Rebel Yell. Additionally, this move prompts an open question for smaller manufacturers that rely on MGP for their product: will MGP be re-focusing their distilling efforts on their in-house brands instead of shipping whiskey to competitors, which could drive up the price of MGP’s spirits and make consistent deliveries more difficult? It has the potential to significantly hurt those smaller businesses, with a chilling effect on new brands coming to market.
Here’s the press release fresh off the wire:
ATCHISON, Kan., Jan. 25, 2021 (GLOBE NEWSWIRE) — MGP Ingredients, Inc. (Nasdaq:MGPI), a leading supplier of premium distilled spirits and specialty wheat proteins and starches, today announced a definitive agreement to acquire Luxco, Inc., and its affiliated companies (“Luxco”). Luxco is a leading branded beverage alcohol company across various categories, with a more than 60-year business heritage. For the unaudited twelve month period ended October 31, 2020, Luxco generated approximate net revenues of $202 million and 9-liter case volume of 4.8 million.
Luxco provides an established platform of extensive operational capabilities and a comprehensive national sales footprint with an attractive portfolio of brands including Ezra Brooks® Bourbon Whiskey, Daviess County® Straight Bourbon Whiskey, Yellowstone® Bourbon Whiskey, El Mayor® Tequila and Everclear®. This transaction will immediately increase MGP’s scale and market position in the branded-spirits sector and strengthen its platform for future growth of higher value-added products. Importantly, the transaction is expected to improve MGP’s gross margin and cash flow generation profile, and management expects EPS to be low to middle single digit percentage accretive in the first full year following its close, excluding one-time transaction expenses.
“Luxco presents a unique opportunity to take a material step towards realizing our long-term strategy. It significantly expands our product line in the higher-value branded-spirits sector and increases our sales and distribution capabilities across all 50 states,” said David Colo, president and CEO of MGP Ingredients, Inc. “We have enormous respect for the platform Luxco has built, and we’re excited to add its portfolio of fast-growing premium distilled spirits brands together with strong, cash-flow generating legacy brands. We welcome Donn and his family into the MGP shareholder base and look forward to growing together.”
“There is a clear strategic fit between Luxco and MGP and I believe this transaction represents a great outcome for Luxco employees and customers,” said Donn Lux, chairman and CEO of Luxco. “I’m excited to continue my involvement with this blend of two well-positioned companies whose strong records of performance and commitment to excellence provide an attractive platform for continued growth.”
Under the terms of the agreement, Luxco shareholders will receive aggregate cash consideration of $238 million, subject to customary adjustments for working capital, net indebtedness and transaction expenses. They will also receive 5.0 million shares of MGP common stock, valued at approximately $238 million based on a 20-day volume-weighted average price as of January 11, 2021. Luxco shareholders will have the right, subject to certain conditions, to nominate up to two of the Company’s nine Board directors with Donn Lux being designated as the Luxco shareholders’ first director following the closing of the transaction.
The cash portion of the purchase price, plus transaction-related expenses, will be financed by borrowings under MGP’s existing revolving credit facility. The transaction is anticipated to be completed during the first half of 2021, subject to regulatory approvals and customary closing conditions.
Nomura Securities International, Inc. acted as exclusive financial adviser to MGP in this transaction. Stinson LLP acted as MGP’s legal counsel. Perella Weinberg Partners acted as exclusive financial adviser to Luxco, and Bryan Cave Leighton Paisner LLP acted as Luxco’s legal counsel.https://www.globenewswire.com/news-release/2021/01/25/2163506/0/en/MGP-Ingredients-Inc-Announces-Definitive-Merger-Agreement-with-Luxco.html