C&C paid top whack when it agreed to shell out $305m (€233m) for the Vermont Hard Cider Company last week. At over 20 times EBITDA, C&C chief executive Stephen Glancey has placed a huge bet on the continued expansion of the American cider market.
VTHCC has the capacity to produce up to 400,000 hectolitres (about 70 million pints) of cider annually at its Vermont plant and owns the Woodchuck brand. According to C&C, Woodchuck has increased sales volumes by an average of 23 per cent over the past three years.
That's the good news. The bad news is that, excluding brands that are not included in the sale, VTHCC will deliver EBITDA (earnings before interest, taxation and depreciation and amortisation) of just $15m this year. With VTHCC being acquired debt free, interest isn't an issue, but taxation and depreciation on its cider plant certainly are.
In other words, the likely after-tax profits at VTHCC will be considerably less than $15m in 2012. So why is Mr Glancey paying what appears to be an astronomical price for the company? Surely he hasn't been over-imbibing the Woodchuck?
The most likely explanation for his decision is provided by his previous career. Before joining C&C in 2008, he had been head of operations at Scottish & Newcastle (S&N), the UK's last independent brewer.
S&N's UK operations were taken over by Heineken in 2008 in a transaction that included HP Bulmer, which owns the Bulmers cider brand outside of the Republic of Ireland. With Heineken busily growing its presence in the cider business, it purchased Belgian cider producer Stassen in June and took over the US distribution of its Strongbow cider brand from VTHCC in August. Is Mr Glancey hoping that, as happened with S&N, the Dutch brewer will be encouraged to launch a bid for C&C?