Did Scandinavian Tobacco Group Overpay for Alec Bradley Cigars?

Did Scandinavian Tobacco Group Overpay for Alec Bradley Cigars?
Date: March 2023
Author: Inspector X

Scandinavian Tobacco Group (STG) made headlines with its recent acquisition of Alec Bradley cigars for a whopping $72.5 million. However, industry experts are concerned about the high price tag, especially considering that Alec Bradley’s revenue in 2021 was only around $25 million. What’s more, the profit generated by the company is less than $7 million, a figure that raises serious doubts about the acquisition’s overall value.

Despite these concerns, STG is confident that the deal will be a success. The company believes that the acquisition will expand its portfolio and provide access to Alec Bradley’s salesforce. STG has been interested in acquiring other companies for some time, but previous offers were deemed too low by their owners. Therefore, the Alec Bradley deal came as a surprise to industry insiders.

It is important to note that Alec Bradley does not own any farms or factories. Instead, the company buys cigars from other manufacturers and sells them for a profit. This fact makes the acquisition even riskier, as STG has only acquired the business’s trademarks and salesforce. It remains to be seen whether STG can successfully integrate Alec Bradley into its existing portfolio, which includes other well-known brands such as Room101, Diesel, Chillin’ Moose, and the non-Cuban versions of Partagas, La Gloria Cubana, Bolivar, and El Rey del Mundo.

The acquisition of Alec Bradley is the most expensive cigar deal in recent times, with the last similar acquisition being Davidoff’s purchase of Camacho in 2008. However, the Camacho acquisition was only successful after Davidoff invested in building a new factory and completely revamping the portfolio of brands it had acquired.

Despite these challenges, STG remains optimistic about the acquisition. The company has stated that Alec Bradley’s revenue and EBIDTA before special items improved in 2022, although no specific numbers have been disclosed. Nonetheless, industry experts remain skeptical about the high price tag, and some have criticized the deal as an overpayment.

In conclusion, STG’s acquisition of Alec Bradley for $72.5 million is a bold move that could pay off handsomely, but it also carries significant risks. With Alec Bradley’s limited profit margin and lack of farms or factories, the acquisition may be challenging to integrate into STG’s existing portfolio. Nevertheless, STG remains committed to expanding its brand portfolio and is confident that the deal will be successful. The company’s ability to turn this acquisition into a profitable venture remains to be seen, but the cigar industry will undoubtedly be watching closely.

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