Could Mexico see the next wave of Coca-Cola bottling consolidation?

Could Mexico see the next wave of Coca-Cola bottling consolidation?

The Coca-Cola bottling landscape in Mexico is ripe for consolidation, with Coca-Cola FEMSA and Arca-Continental in prime M&A positions, according to an industry analyst.

In a note issued by BBVA Bancomer last month, Fernando Olvera Espinosa de los Monteros suggested that the two main players among the country's Coca-Cola bottling system may seek to consolidate the eight smaller bottlers in Mexico. Arca-Continental, which operates in the northern half of the country, and Coca-Cola FEMSA, which covers the south, account for 25% and 50% of total Coca-Cola volume sold in Mexico, respectively, Espinosa de los Monteros noted.

“Based on recent M&A activity,” he argued, “we think it is possible (Coca-Cola FEMSA) and (Arca-Continental) will seek to consolidate them.”

While Coca-Cola FEMSA could target Bepensa, Yoli de Acapulco and Corporación Rica, all in the south, Espinosa de los Monteros suggested Arca-Continental may be interested in Bebidas Refrescantes de Nogales, Embotelladora de Nayar and Corporación del Fuerte, in the north. “We believe the most interesting deals would be with Grupo Fomento Queretano and Embotelladora de Colima, because these are in regions where both (Coca-Cola FEMSA) and (Arca-Continental) operate,” he wrote.

However, “although this makes sense based on the possible synergies it might generate”, Espinosa de los Monteros warned, “it would depend on the conditions in which such transactions take place (if they happen at all)”.

Last month, Arca-Continental, itself a result of a merger between Embotelladoras Arca and Grupo Continental in January, said that it had a war chest of around MXN3bn (US$223m) for any future potential purchases.

Company chief executive Francisco Garza said at the time: “The company can get financing for US$1bn or so. So the issue of financing is not there. The market likes the company … and, if it's an acquisition, it's an acquisition. If it's a merger, it's a merger. If it's a combination … we are flexible.

“This company was created in that way originally. If our foundation is coming from that, then we are flexible to be in that process again."