Bacardi is one of the world’s leading premium spirits makers and produces ten varieties of its namesake rum. Founded in 1862 in Cuba, the company, through its affiliates, operates nearly 30 production sites worldwide and sells in more than 150 countries. The giant alcohol company has bought the tequila maker Patrón for approximately 5 billion of dollars. Bacardi already held a minority stake in Patrón since 2008 and will have full control over the completion of the transaction scheduled for the end of the first half of the year. The two companies are both in the alcohol industry.

 

Bacardi buying Patron tequila from CNBC.

In general, the acquisition of a new company is a way to develop and diversify. Buying a competitor is one of the most attractive avenues of growth by acquisitions.What is the benefit of buying a competitor for your brand? We are going to see in this article four advantages of acquiring a competitor.

DIVERSIFICATION

With the acquiring of Patrón, Bacardi will become the number one in the high-end segment and the second largest group of spirits by market-capitalized in the US.It allows the bidding company to enlarge its products with the tequila. Moreover, tequila is one of the fastest-growing sectors of the spirits industry. The company already owns the Eristoff and Gray Goose vodkas of Italian vermouth Martini. Bacardi stands out with its different kinds of alcohol on sale and also the different flavour for each type of alcohol. Acquiring a competitor can allow the bidding company to raise commercial opportunities thanks to the complementarity of products.

 

 

SYNERGY & CROSS-SELLING

Buying an existing company gives customers, suppliers, lenders and other contacts a confidence in your business that they may not have when interacting with an unknown start-up. In addition, it helps to acquire an additional production force, a new customer portfolio, and a marketing strategy that may be more innovative. It ‘s beneficial for both of the companies in taking better advantage of each other’s distribution channels. It also gives a chance to bring top talent into the firm’s workforce with over skills and knowledge. So that means the recruiting process is easier. The employers of Patrón are going to bring a wind of change to Bacardi. Both of the companies will bring together their skills and ideas to be as effective as possible. And the tequila maker has its clients already, therefore, products can be sold to a wider customer base.

POWER OF INFLUENCE

In addition to acquiring a new customer base and new workforces, with one less competitor, you now may well have more control over price. Logically, the number of sales will increase following the purchase and also lead to a rise of revenues without significantly increasing fixed costs. Buying a competitor is less risky and it reinforces the image of the brand with its development capacities. This will add value to the combined entity. Bacardi sees Patrón as the key to a commanding position at the “ultra-premium” end of the business.  Premium brands such as Patron are outselling mass-market labels, as consumers increasingly look to “trade up” to more expensive drinks.

CASHFLOW – INCOME FROM DAY ONE

In terms of financial view, it’s cheaper for a company to buy an existing one. Bacardi doesn’t need to think about equipment, installation, initial stock and materials, fixtures and fittings, legal and professional fees, a license… The market for Patrón products is already established. It will save time and money and they could now focus on their marketing and sales strategy.

 

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