This week, the media has reported that one of the co-founders of the high end tonic water maker Fever-Tree, Charles Rolls, has pocketed a whopping £73m after selling just part of his stake in the business, which was only listed on the stock market two and a half years ago. How did they do it?
1. They identified a problem. A little over a decade ago, Mr Rolls was a director at the Plymouth Gin distillery, but found that when tasting gins with clients, they were unable to tell the difference between standard and premium brands once they had been mixed with typical tonic water. That’s a problem both for gin connoisseurs and the premium brands themselves.
2. They had great timing. The timing of this discovery was hugely fortunate as we’ve seen the popularity of gin take off significantly in recent years and Fever-Tree has been able to ride this wave.
3. Solid branding. The company was launched in 2005 and in case you were wondering, the name comes from the Fever Tree that produces quinine, the product that gives tonic water its unique taste.
4. Sound cashflow management. There was obviously a lot of effort invested by the co-founders over the following decade, including navigating their way through a big economic downturn but by 2013, keen to raise some cash, they sold a 51% stake in the business for £48 million to a private equity firm. 18 months later and the company was floated on the stock market, with a valuation of £154 million, serving up a good profit for the owners, but almost a 60% return for the private equity backer in just six months.
5. Smart marketing partnerships to increase distribution. However the success story didn’t stop there. That gin popularity wave, along with some astute marketing – so if you fly British Airways first class, they’re apparently serving Fever-Tree – has seen the company’s profitability soar.
So for every £20 invested – which seems to be about the going price for two of the latest artisan gins, served of course with Fever-Tree tonics – in the company back in 2014, what would it be worth today? At the time of going public on the stockmarket, shares traded for 134 pence each, so you would have been buying around fifteen shares for the same as that small round of drinks. The news of the director selling 4% of the shares rattled the market a bit, but with the shares now trading around the £17 mark, that still makes for a tidy profit for those who got in early. A quick bit of maths shows £17 multiplied by 15 equals £255, which would comfortably cover a very good night on the town..