Tassie whiskey company, Lark Distilling (ASX:LRK) is on the M&A trail, announcing a major acquisition and capital raise this morning.

The company has made a swoop for Kernke Family Shene Estate, in a deal worth $40 million.

The Shene Estate is the owner of the Pontville Distillery and Estate, an iconic distillery located 30 minutes north of Hobart at Pontville.

The estate includes 40 acres of land and buildings, a 130,000 litre distillery, a cellar door, eight bond stores, a working cooperage and the historic stables and homestead.

Lark will pay $38.5 million in cash, with the remaining $1.5m to be paid in shares.

The company is undertaking a capital raising of $53m to fund the deal, with $46.5m being underwritten by Barrenjoey.


Capitalising on momentum

Pontville will be Lark’s third working distillery in Tasmania, alongside its Cambridge and Bothwell sites, and will increase the in-house production of Lark’s whiskey from 193,000 litres to 576,000 litres a year.

The Estate is also expected to give Lark an additional stock of 483,000 litres of whiskey under maturation, worth $24m.

That will take Lark’s total litres under maturation to more than 2 million litres by June 2022, valued at $435m.

“We’re effectively buying the liquids at $49 a litre, and selling them at $216 a litre,” Geoff Bainbridge, CEO of Lark, told Stockhead this morning.

“If you think just about the headline before understanding the intricacies, you’d think $53m is large but it’s super accretive to shareholders.”

Bainbridge also said that building a brand is all about momentum, and Lark does have rapid momentum right now with sales doubling two years in a row, and already up by 80% this quarter.

The acquisition is also expected to provide Lark with early access to the export market beginning in FY23, much sooner that it could have done alone.

“If we were to capitalise on that demand momentum organically, we would have to wait five to eight years,” he explained.

“This acquisition means that we’re picking up liquids that are available and ready to go, so it gives us the opportunity to capitalise on our brand momentum rather than have to wait for an extended period of time.”

Around $13m of the $53m capital raise will be used construct a new 1 million litre greenfield distillery on the Pontville site.

The construction will commence in early 2022 and deliver Lark a world-class distillery in 2023, says Bainbridge.

Pontville also owns eight onsite bond stores, ensuring that fire risk is appropriately managed across its separate locations throughout Tasmania.

Lark Distilling share price

Lark Distillery will be celebrating its 30th year of operations next year, after being founded by former surveyor Bill Lark in 1992.

The company houses a range of spirits headlined by its single malt whiskies, including the Classic Cask 43% and Cask Strength 58%.

It also has a unique blended-malt whisky, SYMPHONY No.1, along with a range of Forty Spotted Gins and handcrafted Tasmanian spirits and liqueurs.

The Lark share price is up 275% from a year ago, and is trading at $5.06 today.

Bainbridge reckons it could even be a $12-$15 stock, given the current momentum and demand for whiskey worldwide.

“I think Lark has demonstrated that luxury brands are rare, and I believe the company is sitting comfortably with the likes of the Penfolds and in the category of triple-A investments,” Bainbridge said.

For the second consecutive year running, Lark was nominated for the International Wine and Spirit Competition (IWSC) Worldwide Whiskey Producer of the Year, with the winner to be announced in Edinburgh, Scotland on October 21.

Lark Distilling share price today: