Mergers and acquisitions have to varying degrees been important in shaping the different alcoholic drinks categories.

More recently, with Suntory Holdings’ acquisition of Beam Inc, Emperador’s pending purchase of Whyte & Mackay and Diageo’s numerous buys in emerging markets, the spirits category has been in the spotlight, with brewers having been far quieter thanks to significant consolidation already having taken place in beer. Wine companies, in contrast, have learnt to be more circumspect following a spate of activity around the turn of the century.

Euromonitor International’s recently-published global briefing 'Mergers and Acquisitions in Action', looks at all the different aspects of M&A activity, from the motives of both buyers and sellers and paying the right price to the vital importance of carrying out due diligence and integrating the new business, using relevant historical examples from the alcoholic drinks world.

Why do companies want to buy or sell?

While most M&A activity is the result of a company wanting to expand or grow in a new market or category, not all companies do it for positive reasons. Some companies do it for defensive reasons, with one of the most notable examples being the Molson Coors merger in 2005 to combat the threat of Anheuser-Busch in North America. Others, such as William Grant & Sons, acquire brands to make sure that they have sufficient scale for their distribution operations, for example in the UK with its Raynal acquisition in 2005.

However, most M&A activity is instigated as a positive step through which to expand. Brewers’ main motive has been to broaden their geographical profiles by acquiring local or regional brewers, as seen recently with Anheuser-Busch InBev’s acquisition of Grupo Modelo and Oriental Brewery Co in South Korea.For spirits companies, it has been more of a mixture. While Diageo’s acquisition of companies such as Mey Içki and impending purchase of United Spirits is aimed at gaining a strong foothold in key growth markets, numerous others have been about broadening one’s category spread, as has been the case with Campari

Nevertheless, for every acquisition there has to be a seller. This may be forced due to competition issues or the need to pay down debt, as was the case with Pernod Ricard after it bought Vin & Sprit, or it may be a more willing move, as was the case with C&C Group, which wanted to exit its non-core spirits operations and use the money to invest in its cider/beer business.

It could also be the case that a company lacks the resources to grow a brand further, a circumstance highlighted by Purple Wine Co's sale of the Mark West brand to Constellation Brands in 2012.

Paying the right price

Once both parties are open to a possible deal comes the tricky part of fixing the right price. This is a very complex area and involves various financial tools such as discounted cash flow for working out what is a fair value. Within this, hopeful acquirers have to look at different factors such as cost savings and the extra revenues they expect to generate.

Different categories have different balances between cost savings and boosting revenues, with beer, for example, much more focused on the former and spirits the latter.

However, paying the right price is more an art than a science as it comes down to the negotiations between the two parties. It can also mean that companies pay way above what is sensible, if the acquisition is perceived as essential and too good an opportunity to miss. This was certainly the case in a number of examples, such as Suntory and Beam, Heineken and Asia Pacific Breweries and Pernod and Vin & Sprit.

Due diligence and integrating the new business

In one way, agreeing a price is the easiest part as then comes the vital business of making the acquisition a success. This starts with due diligence, which means looking at all aspects of the potential new business, be it in terms of finances, contracts with suppliers and ownership of assets.

Getting this wrong, as Molson Coors did with its acquisition of Kaiser Brewery in Brazil, can mean the difference between success and failure.

Yet, even if completed successfully, there is still the difficulty of integrating the new operations; this is often where the benefits of any acquisition fail to materialise. As with negotiating the price, this is as much an art as a science due to the fact that each acquisition is different, being maybe a single brand or the purchase of a multinational company.

Despite there being a great deal of M&A activity in alcoholic drinks in recent years, there is still likely to be some more. Activity within the highly-consolidated beer category is likely to mainly focus on smaller local and regional brewers, although there is still the possibility of a mega deal, with A-B InBev maybe making a move for second-ranked player SABMiller. In wine, the focus will be on smaller deals to fill local gaps. Meanwhile, in spirits, despite Suntory’s recent ambitious pronouncements on further M&A activity following its Beam acquisition, due to all of the major companies being privately-owned, this will be reliant on owners deciding to sell, which seems unlikely. 

Whatever happens, we can expect the M&A pages to continue to be lively in the coming months.

Expert analysis

Mergers and Acquisitions in Action

Mergers and Acquisitions in Action

Using a variety of historic examples, this briefing looks at all aspects of M&A activity, from motives, paying the right amount to integrating the new acquisition. Although focused on the major alcoho...read more