According to NZ Herald reports Independent Liquor has been sold to Australian-based private equity firms Pacific Equity Partners and CCMP Capital Asia for NZ$1.26 billion.

Our valuation was a mid-point of NZ$1.034 billion with a range from NZ$698 million to NZ$1.42 billion.  Our analysis of the company (using very limited public information) was probably pretty close.

It is a good result for the estate of the late Michael Erceg.  It does however illustrate the amazing job he did – creating over a billion dollars of value since starting the business in 1987.  New Zealand does not have enough entrepreneurs of his standard – he is missed already.

After Michael Erceg’s death in late 2005 his Independent Liquor business (http://www.independentliquor.co.nz/) is apparently for sale.  There are a number of industry players and private equity firms looking at the business.  What might it be worth?

There is certainly limited information available.

Our starting point was the stated NZ$150 million of annual profits from industry insider DB CEO Brian Blake and more detailed analysis suggesting NZ$105 million of operational profits last year and forecasts of NZ$120 million for next year. We wanted to check what figure looked reasonable. We used the NZ$105 million for EBIT (as it was the lower) and assumed 20% EBIT margins – based on comparators Lion Nathan, APB and Foster’s. This gives a revenue number of NZ$525 million.

The more detailed analysis gave Australian sales of A$202 million (NZ$232 million at 0.87). The Commerce Commission OK for Lion Nathan to potentially acquire Independent Liquor stated that with the potential acquisition DB Group would still hold ~40% of the New Zealand market. DB Group had sales of NZ$414 in New Zealand in 2005 – Lion Nathan had sales of NZ$489 million in New Zealand in 2005. Assuming NZ$100 million of Independent Liquor sales and NZ$25 million of “other” sales gives a total New Zealand market of NZ$1,028 million and DB Group ~40% with sales of NZ$414 million. NZ$232 million of Australian sales plus NZ$100 million from New Zealand leaves NZ$193 million of sales from the rest of the world. This appears reasonable. Sales from the rest of the world may be lower if margins achieved are higher than we estimated. Using the NZ$150 million EBIT figure at 20% EBIT margins gives a NZ$750 million revenue number – this looks too high.

Using NZ$105 million of operational profits for last year we grew EBIT to NZ$120 million in 2007 (15% growth) and then 10% in 2008 and 7.5% in 2009 with a 2% terminal growth rate.

Our valuation is NZ$1,034 million with a range of NZ$698 million to NZ$1.42 billion.

This valuation is for the Independent Liquor business as a standalone entity. Depending upon who the actual acquiring entity is – there may be synergies that mean that the ultimate price paid may be higher. We have examined this previously based on the 42 Below acquisition by Bacardi. Assessing a premium above the valuation depends upon what each potential acquirer can exploit from the Independent Liquor assets in the way of synergies.

Independent Liquor Valuation