“Today marks a transformative milestone for Heineken,” CEO Dolf van den Brink said as the brewing giant announced a $3.2bn deal for a clutch of beer, soft drinks and retail assets in Central America.
It would be a surprise if CEOs didn’t lay it on a bit thick when unveiling their latest acquisition – especially such a sizeable one – but van den Brink can be forgiven a little as the transaction does look to be positive for the Dutch brewing giant and has been broadly welcomed in financial circles.
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The deal sees Heineken buy the remaining 75% it does not already own in Distribuidora La Florida, FIFCO’s drinks, food and retail division in Costa Rica.
Heineken will take over the more than 300 Mussmani and Muni retail outlets FIFCO has in Costa Rica, as well as its “overall operations” in El Salvador, Guatemala and Honduras.
The agreement also includes a 75% stake in Nicaragua Brewing Holding, a 25% stake in Heineken Panama and full ownership of FIFCO’s “beyond beer” business in Mexico.
The transaction builds on a “long-standing partnership” between Heineken and FIFCO, which started in 1986. Heineken first took a minority 25% stake in Distribuidora La Florida, in 2002.
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By GlobalDataOverall, the transaction is Heineken’s largest in the four years since it announced its twin deals for a majority stake in South Africa’s Distell and the acquisition of Namibia Breweries.
In 2022, Heineken bought full ownership of the UK’s Beavertown Brewery but, since the pair of acquisitions in southern Africa, the brewing titan has largely focused on disposals and on making minority investments outside beer.
Van den Brink described the FIFCO deal as “compelling for several reasons”, pointing to the “robust macroeconomic fundamentals and favourable demographics” in the region, as well as another bottling deal with PepsiCo. “This transaction is value enhancing for Heineken, driving operating profit margin and earnings per share from day one,” he told analysts.
Bernstein analyst Trevor Stirling called the transaction “a sensible deal at a sensible price”. He added: “The assets all have good growth prospects and are performing well financially.”
Heineken talks up Costa Rica prospects
Heineken’s comments about Costa Rica caught the eye. The Sol brewer emphasised the profitability of the business and the prospects of growing beer consumption in the country, which the company said lags some neighbouring markets.
“Costa Rica will be one of Heineken’s top five operating companies by operating profit and there’s more growth to be had as we see the transaction able to generate both revenue and cost synergies,” van den Brink said.
According to Heineken, per-capita beer consumption in Costa Rica stands at 56 litres a year, a level the brewer says is almost half that seen in Mexico and Panama despite, it adds, the higher GDP per capita in the country.
“We can increase per capita consumption closer to levels in the neighbouring markets by shaping the category and applying our revenue management systems,” van den Brink added, with an eye on driving sales of Heineken and Sol.
Barclays analyst Laurence Whyatt agrees the deal should give Heineken more access to Costa Rica’s “attractive beer market”, one where the company has been gaining share from FIFCO itself.
“Costa Ricans drink 3.6l of pure alcohol a year, a level that has remained relatively static over the past decade. However, beer has increased its share of throat over the past decade, consistently growing to 65% of total beverage alcohol in 2024 from 59% in 2015, reflecting a circa 3% volume CAGR for the category,” Whyatt said.
“Over the same time-frame, premium beer has grown to 15% of volumes, from 13% in 2015. However, FIFCO has been losing share from a fairly dominant market position. In 2024, it had 87% value share in the market. This was down from 91% in 2015 – but the share has been lost to Heineken, which had 7% of the market in 2024, up from 1% in 2021.”
Nevertheless, Heineken’s management faced a question on FIFCO’s current trading when discussing the transaction on a call with analysts. FIFCO has seen sales come under pressure in the first half of the year, although van den Brink said that had been “driven” by the group’s beer business in the US, which is not among the assets Heineken is acquiring. (FIFCO has said it is “exploring strategic alternatives” for its US business).
“On the underlying Costa Rican and Nicaraguan business, also there we do see some softness but to a much smaller extent,” van den Brink conceded.
However, the Heineken chief said the dent in sales growth had been driven by the muted consumer sentiment being seen “across Latin America”.
He added: “Mid and long term, we are very, very confident in the growth profile of this business, the underlying drivers of demographics, the middle class, the income increase and the track-record of this business, which has been extremely strong over the long term, including the last five years.”
An important part of Heineken’s growth thesis for the deal will be driving per-capita beer consumption in Costa Rica. Van den Brink indicated the company would study how the business prices its products in the country.
“I think the low per capita [consumption] is probably mostly driven by the relative price level, so we do see an opportunity of balancing that,” he explained. “That’s always a strategic thing to get right but we do believe that, through price-pack architecture, through applying our revenue margin growth playbooks, that we can accelerate beer per-capita volume. Nothing dramatic short-term but, mid-long term, we really believe that we can at least partly close the per capita gap with some of the surrounding countries.”
Soft drinks central to deal, Heineken says
Nevertheless, the Heineken chief also sought to emphasise the other opportunities it sees from the deal in Costa Rica. “There’s solid growth on the soft drinks portfolio. There’s good growth on adjacencies, whether it’s the retail business or the wine and spirits distribution. Across categories and formats, we believe there’s a lot of further growth that to be had,” he added.
The deal comes with FIFCO’s soft-drinks business, in Costa Rica, (the country’s second-largest) a PepsiCo licence and a clutch of retail outlets in that country and in Nicaragua. Naturally, given the recent soft-drinks disposals in the Netherlands, Slovenia and Tunisia, Heineken’s management faced questions about whether those assets would fit with its position in the country.
“There is no systemic position on soft drinks. This is something that we really look at market by market,” van den Brink said. “It is true that we have been divesting some of it. These were very important local circumstances.
“On the more global scale, we are a very proud bottler of both Pepsi and Coca Cola in different parts. There’s many markets where combining beer and soft drinks makes a lot of sense from a logistics, a route-to-market, system-strength point of view.
“In this particular case, both the own soft drink portfolio, which is of significant scale, as well as the Pepsi franchise in Costa Rica, is actually a very important part of the business and absolutely considered core and we’re proud to extend our long-term partnership with Pepsi in this regard. They’re fully supportive of this transaction.”
And the Heineken CEO pointed to the company’s Six convenience-retail chain in Mexico, which, he said, was “a very strategic, important part of our business model” in that country.
“Therefore, we really like both in Costa Rica and in Nicaragua this emerging proximity store format. There might be good synergies between our experience and expertise in Mexico and these retail businesses in these two markets. It’s actually explicitly part of the scope and parameters that we really value,” van den Brink said.
Overall, the deal looks a sound move by Heineken in markets it knows well and where there does look to be room for growth in consumption, even if FIFCO’s sales have come under pressure in recent months.
The make-up of the assets being acquired, including soft drinks and retail assets, may make the transaction look a little complex but Heineken has experience in those fields, too.
The brewing giant will have its hands full but, for its first big M&A deal for four years, it looks logical.
