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Just when you think you’ve seen the richest-priced brewer buyout deal, an even bigger one appears!
Last month, AB InBev (BUD) announced it would buy out the half it doesn’t already own in Grupo Modelo SAB of Mexico (GPMCY) in a $20 billion deal.
Now Heineken NV (HINKY) is offering to pay about 17 times earnings for its latest deal, which is at least a 35% premium above the 12.6 average multiple paid in dozens of global beer deals since 1999.
Why so much?
I’ll give you three reasons:
Reason #1—
Emerging Markets Are
Where the Growth Is
Nearly two-thirds of the world’s growth in beer consumption will come from Asia and other emerging markets in the next five years.
Asia Pacific Breweries Ltd., Heineken’s takeover target, is one of the fastest-growing and most profitable beer companies in Asia.
In addition to its interest in Asia, Heineken has been extending its reach in emerging markets, with acquisitions in Mexico, India, Brazil, and Africa in recent years.
Emerging markets are where you’ll find large populations, with a higher proportion of younger consumers combined with an expanding middle class. And as their incomes rise, consumption of alcoholic drinks will increase and consumers will trade up to premium consumer brands.
Reason #2—
Leading Emerging Market Companies
Now Have Global Scale Potential
This makes them attractive acquisitions for global, consumer-focused buyers.
The Asia Pacific deal would be the Amsterdam-based company’s largest, after offering $7.4 billion in 2010 for the beer operations of Coca-Cola bottler Fomento Economico Mexicano SAB, or Femsa (FMX).
But the problem here is that the shortage of major assets for sale is pushing up valuations in the beer industry. Through popular beer brands like Tiger and Bintang, Asia Pacific Breweries holds as much as a 50% market share in Indonesia, Malaysia and Singapore.
The deal also increases Heineken’s global market share to 9.7%, just behind SABMiller (SBMRY).
The world’s four biggest brewers: AB InBev, SABMiller, Heineken and Carlsberg (CABGY) already control half the global beer market.
Reason #3—
The Beverage Industry Continues a Consolidation,
Especially in Emerging Markets
Consider Brazil, where AB InBev dominates the market with a 70% share.
Petropolis is a family owned-brewer that ranks as Brazil’s second-largest with an 11% market share trailing AB InBev’s huge lead. After Kirin (KNBWY) recently bought No. 3 player Schincariol, Heineken could appear as the preferred buyer for a deal with Petropolis when it becomes available.
And this consolidation and rising values idea is not just for alcohol. There’s a global consolidation of large-scale bottlers going on, too.
Coca-Cola Femsa SAB (KOF), the largest publicly-traded Coke bottler by volume, is in talks to buy a controlling stake in the Coca-Cola Co. (KO) Philippine unit in what would be its first acquisition outside Latin America.
Last year I wrote that the coming merger wave in brewers was on the way and had the potential to lift stocks higher. And that time has arrived.
Cheers!
Rudy
