Glenboden M & A Originations

Royal Unibrew continues to ripen as an acquisition platform after latest purchase in Latvia

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Origination Status business unit acquisition announced, August 2007;
Asset Livu Alus (Latvia), third-largest domestic brewery;
Buyer Royal Unibrew A/S (Denmark), international beer and soft drinks producer;
Seller Grigis & Co Ltd (Latvia), domestic retailing and meat processing company;
Buyer Rationale part of strategy of buying regional beer brands in strategic markets;
Seller Rationale to focus on core business of meat processing;
NBs Livu Alus acquisition doubles Unibrew’s Latvian market share, to 18-20%.
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This little deal confirms a trend, started by Heineken and SAB earlier this year, of making small bolt-on acquisitions, in central Europe, to consolidate market positions or add new brands or capacity. They show that smaller deals are and will be aplenty in brewing in that region (and elsewhere), as the majors re-shuffle and expand their portfolio and coverage, and as smaller players exit or retreat to core markets in brewing and other sectors.

Unibrew’s strategy is to grow by acquisition in the Nordic countries and selected adjacent geographies, including the Baltic states. Glenboden recently expressed disappointment that Unibrew didn’t acquire Browar Belgia in Poand (SABMIller did so instead), since we thought it fitted their roll-up of mid-sized brewers strategy in that country.

While Unibrew presumably have too much ‘on their plate’ already in Poland, this is evidently not the case in the Baltics, where the company only has two breweries so far. This shows how important domestic brands and capacity are in the brewing business; in theory Unibrew could just export into the Baltics from Poland, like a lot of food companies do, rather than invest in production there.

This deal also suggests a pattern, at Unibrew, of buying breweries that are non-core for the seller; its earlier acquisition of Łomża in Poland was from a starch producer. Although Latvia’s third largest brewery, Livu Alus seems like a micro-brewery, being little more than a side-line for a bigger company, Grigis & Co., whose main business is meat processing and regional (within tiny Latvia) retail.

In fact it might even qualify as a tourist brewery, attracting visitors to watch the process of beer making and try different types of beer (14 in total). On the other hand it provides Unibrew with a large modern production site (in existence since 2000), and a doubling of market share, although the company remains the no.3 player in Latvia after this deal. Maybe there’s also some hidden potential, if there’s a brand there with some traditional Latvian provenance.

This deal serves to confirm our view that Unibrew is teeing itself up to be acquired one day, for example by Carlsberg. The latter’s stated strategy is to focus on mid-sized acquisitions in its core and strategic markets, which include the Nordic region and Russia. Unibrew is there on a plate for them.

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