25 March 2008 - Synergy, Co. today announced that it has signed a binding agreement to acquire the Myagkov (sub-premium price segment) vodka brand from Locomir Enterprises Limited for the undisclosed amount.
The Myagkov brand will add 2.2 mln. decalitres or 2.4 mln. 9L cases (2007 volumes) to Synergy’s current platform and the transaction is expected to have a positive impact on earnings. The Myagkov brand is a leading brand in the fast growing sub-premium vodka segment in Russia. In addition, Synergy agreed to acquire Myagkov’s Russian distribution assets which include about 200 sales people.
The acquisition is fully aligned with Synergy’s stated strategy of being a market consolidator through targeted external growth. In addition to the further growth of Synergy’s Russian market shares, the acquisition allows Synergy to enter the Ukrainian vodka market (the # 3 global vodka market after Russia and USA in terms of volume) in a meaningful way.
As part of the acquired assets, Synergy obtains the rights to the “Myagkov” brand, which was a part of “Overline” Group. The availability of “Myagkov” was a unique opportunity to acquire one of the few sub-premium brands with established and sustainable positions in Russia with 13% y-o-y volume sales growth (2007). According to Business Analytica, this brand holds a place among Russian top-3 brands in the sub-premium segment.
Myagkov represents 2.2 mln. decalitres or 2.4 mln. 9L cases (2007) of which 80% is sold in Russia and 20% in Ukraine. Combined with Synergy’s current sub-premium brand Russian Ice, Myagkov establishes Synergy as the market leader in Russia’s fast growing and highly profitable sub-premium segment.
Furthermore, the successful Myagkov flavor extensions offer Synergy an increased capability to grow in the emerging flavored vodka segments.
The acquired brand will be fully incorporated in Synergy’s existing production and distribution platform. The brand will be produced by Synergy’s distilleries in Russia. The added volumes will improve Synergy’s capacity utilization and provide for tangible operational synergies.
The acquisition of the Mygkov’s Russian distribution assets will further enlarge Synergy’s sales network, mainly in the Central and Volga Federal districts of Russia.
“Following Synergy’s IPO in 2007, this agreement is the next step in our expansion and underscores both the ability of Synergy to do attractive acquisitions and act as consolidator in the market,” said Alexander Mechetin, CEO of Synergy. " With the Myagkov brand, we acquired a very strong brand with growth potential and positioned in one of the most attractive segments of the vodka market, the sub-premium segment. This puts us in a strong position to further benefit from the ongoing market premiumization. Also, the positioning of Myagkov as a “mild vodka which is consumed amongst friends” is a great supplement to the Synergy’s subpremium brand, Russian Ice, which uses references to historic Russian events as its key appeal. There is no brand overlap between both brands and we expect them to fully support each other as they address different consumer constituencies.”
Alexander Mechetin continued, "Myagkov’s management expects the 2007 net revenues for the Myagkov brand to be approximately $70 mln. representing 2007 volumes of 2.2 mln. decalitres or 2.4 mln. 9L cases. Our management is expecting a continued volume growth of 10% on pro-forma basis in 2008 for Myagkov. We would expect this acquisition, when completed, to increase Synergy’s 2008 revenues on a full year pro-forma basis to $85 mln. (net of foreign exchange rates’ impact)."
The transaction is expected to close during next two weeks.
Renaissance Capital acted as sole financial advisor to Synergy.