The Speed Rail: Vol. XII

180 degrees

Six months ago my excuse for not writing more frequently was that I was busy on the advisory side. Now it is difficult to put pen to paper because of an uninspiring pipeline (with a few notable exceptions). The year of shoe leather I had planned is no longer a choice but a necessity. 

It's unclear to me why everyone seems to have drastically reduced activity on the buy side at the same time. Consumer data are not unequivocal: de-premiumisation isn't the norm but anecdotally craft brands are having trouble with sell-out. Regardless, it has become increasingly hard to get traction with corporate development teams.

Ironically, these very teams are quietly bringing businesses to the market on the sell-side. Reluctant sellers will meet unwilling buyers (given the types of businesses that are being marketed), with LSD x EBIT being the most likely clearing price. 

Sadly, this is above my pay grade so expect witty outside-in-commentary rather than tombstones. 
 

Fund-Operating Companies

If I had a dollar for every time I have come across a new, or newly planned, fund with it's own 'platform' (read: sales force), I would have enough for a coffee and croissant in New York City, no small feat. The hypothesis is that capital is deployed alongside a dedicated sales force to help get distributor focus. 

This is a tough gig. Distributor power in the US is as strong as ever and salaries high (compared to the UK). For the time it takes the fund to get to scale with investments, the fixed cost is enormous for those already in the portfolio. 

The amortisation is no better on the exit: once the crown jewel has been sold, it is hard to justify the overhead for the remaining portfolio. Fund economics assume one large exit and a number of failures. Will LPs remain patient as capital isn't returned but spent on said overhead?
 

More Non-Alc

Time goes by and I get more depressed by the category (speaking specifically of spirit-like format in 75cl/RTD), which is dominated by mid-priced brand extensions. I have mentioned before that the price ladder in non-alc seems to be non existent. Even the self-professed market leader (measured perhaps by the number of variants) of the category has gone back to investors to raise tens of millions after what appears to be a failed process.  

PS: Diddy v. Diageo

What was he thinking!? Going nuclear - and unjustifiably so - was inevitably going to lead Diageo to kill his golden goose. Pronghorn, whose commercial logic I never understood, now seems prescient ... a genuine do-good story to help inoculate against some negative and unfair PR. Goes to show not all investment decisions can be modelled on Excel; intuition still counts for something.