bibendum

Not content with orchestrating the transformative takeover of Matthew Clarke barely seven months ago, Conviviality CEO Diana Hunter has solidified her grip on the wine wholesale market with the acquisition of UK wine wholesaler Bibendum PLB.

So what does Bibendum bring to the table? What shape is the business in? Will the competition watchdog take a view? And why now?

The £60m deal supports Hunter’s strategy to be the supplier of choice for all drinking opportunities in the on- and off-trade - including convenience, supermarkets, pubs, restaurant, hotels, bars, clubs and festivals - with Bibendum’s £224m sales taking Conviviality’s combined sales to £1.4bn.

“I’ve always admired and had an eye on Bibendum as it is particularly strong in old world and premium wine and has great strength in London and the South East,” Hunter says. “However, it was obvious to us we needed to buy Matthew Clarke first as the bigger of the two on-trade wholesalers.”

Bibendum has undergone a significant transformation itself in the past few years, selling off its Argentinian and South African businesses in 2012, before acquiring PLB, which counts the big four as well as the likes of M&S, Waitrose, The Co-op and Majestic as customers, in 2014.

The deal was the answer to the struggles both businesses have faced in recent years, with sales on a downward trend as PLB suffered along with its grocery customers and Bibendum fought against faltering consumer demand and confidence in a tough wine market.

But while those £224m sales at Bibendum PLB in the year ended 31 March 2015 represented a 29% jump, the accounts include a six-month contribution from PLB and are down significantly on a pro-rata basis. Profits at the group are also slender at just £900k before exceptional items related to the merger.

Hunter stresses Bibendum has improved “enormously” since the merger, becoming more efficient and performing well. “We have done our due diligence on the business and there is no doubt it will benefit from having the strength of Conviviality behind it in terms of logistics and distribution networks and buying power and skill.”

Bibendum delivered to approximately 4,000 customers and 8,000 outlets across the on and off-trade last year, compared with the 17,000 premises supplied by Matthew Clarke. It has five distinct trading companies each focused on a different market sector, but Bibendum (on-trade) and PLB (multiple retail) make up 49% and 43% of group revenues, which are expected to be £270.5m for the year to 31 March 2016.

So why sell now? John Cummins, co-head of equities at WH Ireland, argues it could be a defensive play. “There was an obvious risk for Bibendum if Matthew Clarke, which is four times bigger, decided to start targeting their market,” he says. “Matthew Clarke has been through a challenging period for the past two years under the joint ownership of Punch Taverns and Accolade Wines. Now it has a stable owner investing in the business it is going to make it a tougher market for others to operate in.”

Bibendum CEO Michael Saunders adds: “I am very proud of the success of Bibendum PLB, but as in so many parts of life, things need to change in order to evolve and develop. The new group now formed under the Conviviality banner is formidable - truly formidable - and with very significant opportunity to grow in all the areas in which we operate. How exciting is that?”

Hunter highlights the complementary nature of Matthew Clarke and Bibendum, even down to the smaller business units which look after marketing, consumer insight and events.

Hunter also insists there will be no cannibalisation of sales from owning a supplier to the supermarkets and the Bargain Booze chain. “It is a differentiated proposition and we don’t see ourselves as competing with the supermarkets - some of the [Bargain Booze] stores are only 300 sq ft. And we have set up Conviviality Trading as a new division specifically to serve the mults with their alcohol choices. There will be a Chinese wall between the businesses. It won’t even be in the same building.”

Conviviality expects to take ownership of Bibendum on 20 May after a £32m placing of new shares and a meeting to gain shareholder approval, but what is the chance of plans being scuppered by the Competition and Markets Authority (CMA)?

Before Bibendum, Conviviality’s share of the £14.3bn alcohol wholesale market in the UK stood at 8%, according to Hunter, which lawyers to the firm advise is “well below” the number that would trigger a CMA review.

On the other hand, with the two leading on-trade wholesalers merging, the CMA may take a different view given that other on-trade competitors such as Enotria & Coe, Venus Wine and Spirit Merchants, as well as Booker-owned Classic Drinks, are considerably smaller.

Hunter counters that Conviviality only supplies a fraction of the on-trade at the moment. “There are still a lot of wholesale competitors out there and with 110,000 outlets in the on-trade there is still a long way to go in this sector. Our revenues are significant but not all in the same part of the market and we have a number of different channels. We have really good balance across on and off-trade and there is the specialist part of the business such as agencies and events.”

Hunter won’t be drawn on potential synergies from the deal just yet, but they should capitalise on gains made from the Matthew Clarke deal with more buying efficiencies, distribution and logistics savings and the ability to sell end-of-line on-trade stock in Bargain Booze stores

Cummins adds that now was the perfect time for Conviviality to strike the deal as it gets on with integrating Matthew Clark. “Integration is ahead of where they hoped it would be so the opportunity to buy Bibendum, which is complementary with further synergies, makes a lot of sense as you don’t want to have to do this process twice.”