Tuesday, January 31, 2017

Updating the list of Scottish distillery owners

Back in October of 2015, a question about the ownership of Glenrothes (both the distillery and the brand) led me to write a post where I compiled a list of all of the malt distilleries in Scotland and who they were owned by. I only included the ones that were currently distilling at that time and had been running for at least three years. A major purchase of three Scottish distilleries in 2016 necessitated an update of the list, which I’ve just done. I’ll take a moment here to detail the backgrounds of the buyer and the seller, as well as the distilleries involved

Billy Walker, a veteran of the Scotch whisky industry since 1971, began his career as a distillery chemist at Inver House (which was owned by Hiram Walker at the time; no relation). By the late 1980’s Mr. Walker had stepped into a management role with Burn Stewart, and was part of a management buy-in in 1988 that gave him a 3% stake in the company. Burn Stewart was established in 1948 as a whisky blending, brokering and export business. During Walker’s tenure there, the company acquired two distilleries; Deanston (1991) and Tobermory (1993).

When Burn Stewart was bought out by CL Financial at the end of 2002, Billy Walker was left with a pile of cash and no job. Rather than retire, he went on to look for his next challenge. Along with two South African funding partners (South Africa was on of Burn Stewart’s major export markets), Walker began the hunt for a distillery to buy. In April of 2004 they purchased the BenRiach distillery, with the new owners forming the BenRiach Distillery Company Limited. The group went on to purchase Glendronach in 2008 and Glenglassaugh in 2013.

BenRiach was established in 1898 in Speyside, a bit south of Elgin. But it closed down after just two years, in the wake of the bursting of the industry bubble of the late 1800’s at the turn of the century. The floor maltings at BenRiach continued to be used though, supplying malt for the nearby and co-owned Longmorn distillery. This was made practical by the new private railroad which had been constructed between the two distilleries.

BenRiach was purchased by Glenlivet in 1965 and completely refurbished before reopening in 1966. It was taken over by Chivas Brothers in 1978 and a second set of stills were added in 1985, but its production was dropped to just three months per year in 1999. When Seagram’s, the parent company of Chivas Brothers, broke apart in 2001, Pernod-Ricard acquired many of their assets, including BenRiach. The distillery was closed entirely in August of 2002.

When Walker’s group took over the distillery in April of 2004 its greatest asset was in the warehouses; a continuous stock of aging whisky dating back to 1966. In September of 2004, five months after the purchase, the distillery was up and running again.

Glendronach was established 1826 in Speyside, just outside of Huntly. The distillery went through a series of owners over the course of its history. It was rebuilt after a fire in 1837, fell silent from 1916 to 1920, had a second set of stills added in 1966-67, and was closed again from 1996 to April of 2001. After being taken over by Pernod-Ricard / Chivas Brothers in 2005, the stills were converted to steam heat, ending Glendronach’s reign as the last distillery in Scotland operating with coal fired stills.

Likely needing to free up some capital for their purchase of Absolut, Pernod-Ricard sold Glendronach on to Billy Walker’s group in 2008. In spite of the five year gap in production, there were still 30,000 casks aging in the warehouses; plenty for the new owners to work with as they rebuilt the brand.

Glenglassaugh was established in 1875, near Scotland’s north coast and just west of the modern boundary that delineates Speyside, making it a Highland distillery. In 1892 it was acquired by the Highland Distillers Company, which was in turn acquired by the Edrington Group in 2001.

The distillery saw long silent periods, which lasted from 1907 to 1931 and from 1936 to 1960. It was renovated during 1959-60 before going back into operation, but the next downturn for the industry caused Glenglassaugh to close down again in 1986. The Scaent Group, a Dutch investment consortium, purchased the distillery 2008 and with a healthy investment, had it reopened by November of that year. In 2012 Scaent sold the distillery to Lumiere, an Amsterdam based private equity group. Glenglassaugh was then purchased by the BenRiach Distillery Company in March of 2013. Walker invested even more in the distillery, with the goal of getting it up to full production as quickly as possible.

Just 26 years of production had been followed by 22 years of closure, and during that time the distillery’s owners had used most of the aging stocks in the warehouses for blended Scotches. By the time of the 2008 sale, there were fewer than 400 casks still in the warehouses. This led to the current situation of the distillery offering rare older bottlings (they have ranged from 28 to 51 years old) at very high prices, as well as younger, non-age stated bottlings created from distillate produced after the reopening.

Then, on June 1st of 2016, the BenRiach Distillery Company (all three distilleries, a bottling plant in Newbridge and the company headquarters in Edinburgh) was purchased by the Louisville, KY based Brown-Forman Corporation.

The roots of Brown-Forman date back to 1870, though the company didn’t take that name until 1890. Its original flagship Bourbon brand, Old Forester, was introduced in 1873. The company acquired its first distillery in 1902, and survived Prohibition by obtaining one of the few licenses to bottle and sell medicinal whiskey during that period. Brown-Forman also purchased Early Times, which was a major Bourbon brand, in 1923.

In 1933 a new distillery and corporate offices were constructed in Louisville. In 1940 the company acquired two more Kentucky distilleries, one in Shively and the other in Versailles. The Shively plant was modernized and expanded in 1955, which led to the Versailles distillery going silent in 1957 and eventually being sold off. Distilling ceased at the Louisville plant in 1979, though that location continued to be used for bottling and warehousing. Brown-Forman also established its own cooperage in 1945.

What ended up being their most significant acquisition, though, was the 1956 purchase of Jack Daniel’s. While Early Times had become the number one Bourbon in the US by 1953, Jack Daniel’s would fuel most of the company’s future growth. Its Lynchburg, TN distillery has been expanded many times, and the brand has grown into the best selling American whiskey in the world.

With the whiskey industry on a downward trend in the 1970’s and 80’s, Brown-Forman diversified through the 1980’s and 1990’s, substantially growing its wine business and acquiring Lenox (makers of fine China, among other things) in 1983.

Then, with annual sales topping $2 billion at the start of the new millennium, the company took a new direction. It began to sell off many of its wine assets and in 2005 announced the sale of Lenox. At the same time, it diversified within the spirits realm, adding vodka, rum and tequila to its portfolio.

Plans for a second cooperage were announced in 2012. In 2015 Brown-Forman purchased Slane Castle Irish Whiskey Limited with the commitment to build a $50 million distillery in Ireland.

Finally, in March of 2016, Brown-Forman had completed the sale of its Southern Comfort (which it had owned since 1979) and Tuaca (a brandy-based Italian liqueur) brands to Sazerac Co. Three months later came the purchase of the BenRiach Distillery Company.

What I found interesting were the prices involved in these acquisitions. Since we’re dealing with a mix of currencies, I’ll convert all of the figures to Pounds Sterling so they are relatable.

Billy Walker and company purchased the BenRiach distillery in 2004 for £5 million. The 2008 sale price of Glendronach wasn’t confirmed anywhere, but I’ve seen speculation / rumor that it was in the neighborhood of £30 million. The 2013 sale price for Glenglassaugh was also not disclosed. But we do know that the distillery sold for £5 million in 2008 and the new owners immediately invested £1 million to get it up and running again. I found one article saying that the distillery was sold to Walker for a “tidy profit”, but I found another where Walker stated that he got a great deal on it as the sale went under the radar and there were no competing bids. Keeping in mind that the distillery had almost no stock of whisky with significant age on it, I’m guessing that it went for between £10 million and £15 million. Let’s say £50 million total for all three distilleries.

I’m sure investments were made in all three of the distilleries after they were purchased. There was also the addition of a bottling plant and a company headquarters. I’ll take a wild guess and say £20 million for all of that, which puts the total at £70 million. The 2016 purchase of the company by Brown-Forman was for £285 million. So, the three founders probably quadrupled the money they had invested over the course of 12 years. It’s pretty amazing what you can do with an underutilized / undervalued distillery if you are good at managing the product, marketing and brand building.

While some people scoffed at the sum paid by Brown-Forman, they had just sold Southern Comfort and Tuaca for the equivalent of £373.4 million. That seems like a really high valuation to me for two brands that are probably past their prime (if Tuaca was going to rise with the tide of the craft cocktail movement I’d think it would have happened by now, and I just don’t see So Co having a Pabst Blue Ribbon-like resurgence). But hey, maybe the folks at Sazerac know something that I don’t.

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