Jose Cuervo seeks to expand after raising $1.2b in IPO

The world's largest tequila brand, Jose Cuervo, has raised $1.2billion in an IPO and told investors it plans to use the funds to buy premium brands to expand its empire.

There were fears the Mexican company's IPO wouldn't be successful following US President Donald Trump's move to build a wall between the two countries, impose a hefty tax on Mexican products to pay for it and potentially dump a joint trade deal. 

However, investors decided the decline in the peso since the US election wasn't an issue as the company gets more than 60% of its revenue from the US and Canada while the bulk of its costs are in pesos.

Tequila sales in the US are booming, rising 30% by volume between 2010 to 2015, more than any other alcohol category except cognac, according to research firm Euromonitor International. Sales increased 7% by volume last year, nearly three times overall liquor growth, according to the Distilled Spirits Council.

American drinkers are not pleased that Trump's initiatives might drive up the prices of Mexican beer and spirits.

“Any policy proposal which drives up costs of Corona, tequila, or margaritas is a big-time bad idea. Mucho Sad,” Senator Lindsey Graham, a Republican from South Carolina, has said on Twitter.

However, as Nasdaq notes: "A 20% tariff or border-adjustment tax would increase the price of a bottle of Jose Cuervo Gold only from about $25 to $27. Meanwhile, the peso's 11% depreciation since November 8 should more than cushion any blow to the company's bottom line."

The heirs to the family that controls Jose Cuervo - Juan Francisco Beckmann Vidal and Juan Domingo Beckmann - have seen their combined wealth rise to about $US5.9 billion ($7.7 billion) this week, compared with Bloomberg's estimate of $US3.4 billion prior to the share sale.

WHAT'S NEXT FOR JOSE CUERVO?

What remains to be seen is what the company will do with the money raised by Mexico's biggest IPO in more than three years.

In 2012, Cuervo's parent company Becle SA de CV acquired the Bushmills Irish whiskey brand from Diageo. The deal came after the company had refused to sell the Cuervo brand to Diageo, which held worldwide distribution rights.

Then Diageo chief executive Paul Walsh declined to renew the agreement, as he only wanted brands he owned or controlled in his portfolio.

As part of the deal to end their professional relationship, Becle sold Diageo its Don Julio tequila brand and acquired Bushmills.

Speculation now centres on what other brands Becle might acquire next to boost its spirits portfolio.