Olly Wehring

Analysis - AG Barr move for Lucozade, Ribena looks good, but risks remain

By | 15 July 2013

GlaxoSmithKline will sell Lucozade and Ribena before the end of this year

GlaxoSmithKline will sell Lucozade and Ribena before the end of this year

A move for Lucozade would open up export markets for AG Barr, but the structure of any deal to buy the brand is crucial, an analyst has warned.

A report in The Sunday Times in the UK yesterday (14 July) claimed that Barr is in discussions with several private equity companies over a possible bid for GlaxoSmithKline's (GSK) Lucozade and Ribena brands, after GSK put them up for sale earlier this year. Barr saw its proposed merger with Britvic collapse last week, when Britvic turned down an improved offer from the company.

In a note to clients today, Damian McNeela, an analyst at Panmure Gordon & Co, said that he could see Barr's reasoning for starting talks with potential private equity partners.

“The implied valuation range of GBP1bn (US$1.51bn) to GBP1.2bn for these brands would suggest that it makes sense for AG Barr to team up with PE (private equity),” said McNeela. “This could be the catalyst for us to become more positive on the shares. However, the deal structure will be crucial in determining the merits for equity investors.

“The most likely (deal), in our view, would see the acquired brands placed into a JV with PE," he continued. "In this scenario, AG Barr could take out a call option to buy PE out at some point in the future. Secondly, PE could take a stake in Barr injecting the required equity into Barr for them to bid with.”

McNeela was broadly positive on any possible acquisition. “We think that these brands would broaden Barr’s portfolio and, via Lucozade, the opportunity to access export markets,” he added.

The analyst calculated the valuation of the GSK brands based on their combined annual sales of around GBP600m and an industry average EBITDA margin of around 16% on the brands' EBITDA of GBP96m. “A Price/EBITDA multiple range of 10x to 12x computes our range of GBP1bn to GBP1.2bn,” McNeela said.

The sales process for the two brands in underway, a spokesperson for GSK told just-drinks today, and is expected to conclude by the end of this year.

Expert analysis

Sports and Energy Drinks in the United Kingdom

Low-cost alternatives had a significant impact on the category in 2012, prompting a unit price decline for the sports drinks category and thus for the category overall.

Sectors: Mergers & acquisitions, Soft drinks, Water

Companies: AG Barr, Britvic

View next/previous articles

Currently reading -

Analysis - AG Barr move for Lucozade, Ribena looks good, but risks remain

There are currently no comments on this article

Be the first to comment on this article

Related research

Britvic plc - Mergers & Acquisitions (M&A), Partnerships & Alliances and Investment Report

MarketLine's Company Mergers & Acquisitions (M&A), Partnerships & Alliances and Investments reports offer a comprehensive breakdown of the organic and inorganic growth activity undertaken by an organization to sustain its competitive advantage....

Britvic Plc : Consumer Packaged Goods - Company Profile, SWOT & Financial Report

Canadean's "Britvic Plc : Consumer Packaged Goods - Company Profile, SWOT & Financial Report" contains in depth information and data about the company and its operations. The profile contains a company overview, key facts, major products and services...

A.G. Barr p.l.c. : Consumer Packaged Goods - Company Profile, SWOT & Financial Report

"A.G. Barr p.l.c. : Consumer Packaged Goods - Company Profile, SWOT & Financial Report" contains in depth information and data about the company and its operations. The profile contains a company overview, key facts, major products and services, SWOT...

Related articles

just the Round-Up - The week in drinks

The top ten stories published on just-drinks this week:

UK: Ex-Diageo director to fill Britvic's CMO role

Britvic has appointed a former Diageo marketing director as its new CMO.

Review of the Year 2013 - Part III: Soft Drinks

It's that time of year when just-drinks takes a look back at the past 12 months. Here, in part three of our final management briefing of the year, Andy Morton, takes a look at the major soft drinks stories of 2013.

just-drinks tagline

Not a member? Join here

Decrease font sizeDecrease font sizeDecrease font size Increase font sizeIncrease font sizeIncrease font size Comment on this article Email this to a friend Print this page