Glenboden M & A Originations

Eastern Europe as acquisition priority for SABMiller and Heineken

Priority Rating priority rating 3
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Origination Status company announcement of acquisition of controlling stake, May 2008
Asset Rechitsa brewery (Belarus), significant domestic beer brand
Buyer Heineken NV (Holland), no.1 beer producer in Europe
Seller Belarus state authorities
Buyer Rationale strengthen no.2 position in new geography, very attractive valuation
Seller Rationale to gain strong international partner
NBs earlier this month, SABMiller entered Ukrainian beer market with acquisition of CJSC Sarmat
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We’ve repeatedly commented that Heineken should be focusing on geographies where it has or can have a no. 1 or strong no. 2 market position, like in Belarus. With this acquisition, the group adds a second local brand to Syabar, acquired in December, and increases its market share from 16% to a more comfortable 24%. Seen alongside SABMiller’s acquisition of Sarmat in Ukraine two weeks earlier, it’s clear that eastern Europe is a ripe hunting ground; more acquisitions are likely to follow.

The beer market in both Ukraine and Belarus is exhibiting double-digit growth, and annual per capita consumption is still relatively low there (under 50 litres in both cases). These markets have been overshadowed by Russia, undeservedly so considering their joint population of 60 mln, with more concentrated demographics and proximity to the EU.

Comparing these two transactions, it looks like Heineken is the wiser acquirer. Rechitsa strengthens the group’s no. 2 position in Belarus, and the valuation looks extremely cheap, especially considering the shareholding is being acquired through a capital increase. (In fact, one suspects that one day Heineken will have to pay a lot more, for genuine control of the business). There are numerous add-on acquisition opportunities in the regionalized, financially troubled and underinvested Belarus market, notably Lidskoe Pivo, Brestskoe Pivo and even the market leader, Krynitsa, one day. It seems that OJSC Priorbank has a significant management role in these companies, on behalf of the state.

By contrast, SAB is entering Ukraine by acquiring a weak no. 4 player, Sarmat, that saw its market share decline to 8% last year. With the top four players controlling over 90% of that market, the only way SAB will overtake BBH Ukraine (now Carlsberg) and Sun Inbev, is by acquiring the national champion Obolon CJSC, with its near 30% market share. That might happen one day, because Obolon is owned by its employees; such companies usually succumb in the end.

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