The Current Trends Driving M&A in 2022

The Current Trends Driving M&A in 2022

Ryan Lake 0:09

First of all, Park Street, thanks for having me. I appreciate the opportunity to share some of our knowledge and insights into how we see the world with your audience. Today we’re talking about trends we’re seeing within the world of spirits and ready-to-drink (RTD) spirits. By way of very brief background, at Arlington Capital Advisors, we are a consumer-focused investment banking firm. We advise and represent people and companies on raising capital, selling their brands or businesses, or transactions of that nature. I would start by saying that as a whole, at Arlington, we try to view the world starting with the consumer first, and then working outward to the various tiers and spheres of influence within beverage. All of that leads us into asking: what is the consumer doing, and what does this mean for investment and M&A activity within spirits?

Generally, this means a framework of three or four different things that lead strategic buyers, financial investors, and brand owners to figure out where the consumer is going and how that affects how they invest in their brands, new brands, and new companies. We start with buyers and investors looking at what the hot categories are right now. In spirits, tequila, mezcal, and anything Agave-based has been hot for years based on demographics and consumption patterns, and should remain hot for many more years. Anything Agave-based is of high interest right now to strategics—most already have some sort of brand in that category, but are looking for or open to more.

Ryan Lake 1:52

The second category that has been hot for a long time is whiskey. The category continues to morph and evolve; just last week, the TTB laid out guidelines around American Single Malts. We’re seeing whiskey evolve whether it’s American-based, European-based, or Asian-based. Investors and buyers are watching the whiskey space carefully to see what brands, platforms, or production facilities are interesting, and we’ve seen a lot of investment and M&A activity around whiskey over the last five to ten years. Cognac is another category that has been hot, though it is probably the most challenging for investors because there aren’t many brands left to buy. Gin continues to see a good level of interest due to cocktail culture, and RTD (ready-to-drink) spirits—anything consumed right out of the can or bottle—are seeing huge focus.

Ryan Lake 3:23

Investors and buyers are looking closely at hot packaging types and occasions. Spirits-based RTDs cover a lot of these occasions because they offer convenience in form factor or are allowed at venues like sports events, concerts, beaches, or parks where glass is prohibited. Everything in cans is interesting right now. It started with mainstream beer, went into craft beer, moved to hard seltzer, and is now going into spirits-based and wine-based RTDs. Cans are convenient for the consumer, offer environmental sustainability benefits, and provide logistics and freight advantages due to their lighter weight. Consumers are less patient than ever and want immediate, ready-to-consume options on their own schedule.

Ryan Lake 5:21

Looking at new technologies affecting spirits consumption, sales, and distribution, there are production innovations in packaging and aging, as well as smaller-batch canning. Furthermore, direct-to-consumer (DTC) and e-commerce evolved aggressively during COVID. Consumers are much more open to buying online directly from the manufacturer where legally allowed. Delivery platforms like Drizly, Instacart, and Minibar have expanded this convenience for beverage alcohol, attracting investors who want to back the technology powering these brands.

Ryan Lake 6:49

In terms of how these transactions take place, we see a few primary buckets of investment activity:

• Full Acquisitions: One strategic acquirer buys an entire brand or platform outright, as seen across gin, tequila, whiskey, and RTDs.

• Minority & Growth Investments: Financial and strategic investors deploy capital into high-growth brands or production platforms like MPL (which manufactures both proprietary and private-label products).

• Licensing & Joint Ventures: Companies structure non-cash or low-cash partnerships, letting non-alc or external brands use their trademarks to enter spirits occasions without massive capital expenditure.

Ryan Lake 8:56

This ties into a broader theme of industry convergence between alcohol and non-alcohol companies. Non-alc companies are partnering on joint ventures or buying alcohol platforms outright, such as Monster purchasing CANarchy and expanding into beverage alcohol. Iconic combinations like Jack Daniel’s and Coca-Cola are now formal co-branded RTD products. Additionally, traditional players from other alcohol tiers are crossing over: E. & J. Gallo built a massive presence in spirits-based RTDs with High Noon, Anheuser-Busch acquired Cutwater, and Diageo acquired Lone River Ranch Water.

Ryan Lake 10:44

For brand owners and founders looking to grow or launch a spirits business, here are key action items and pitfalls to consider:

• What to do:

  1. Watch where the consumer is going: Align your strategy with consumer behavior 1–5 years out, looking beyond spirits into non-alcoholic beverage and food trends.

  2. Innovate authentically: Only expand into new categories where your core brand equity gives you genuine consumer permission.

  3. Be open to partnerships: Explore collaborations, licensing, and joint ventures as capital-efficient growth levers.

  4. Utilize excess capacity: If you have distilling, bottling, or aging capacity, leverage it for third parties to offset costs and gain market insights.

• What NOT to do:

  1. Don’t stretch your brand too far: Avoid diluting your core brand by pushing into categories where consumers won’t accept it.

  2. Don’t innovate just to innovate: Focus only on opportunities with meaningful upside rather than chasing niche markets.

  3. Don’t dismiss unconventional deals: Thoroughly evaluate unique partnership structures before turning them down.

You can find us online at arlingtoncapitaladvisors.com. We are always happy to connect with brand owners and founders to help them navigate where their business and the consumer are heading.