Glenboden M & A Originations

SAB acquisition of Grolsch underlines trend for internationalisation of authentic premium beers

Priority Rating priority rating 4
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Origination Status conditional agreement for public cash offer, November 2007
Asset Koninklijke Grolsch NV (Holland), no.2 domestic beer brand with international profile
Buyer SABMiller plc (South Africa), global no. 2 beer producer
Seller shareholders of Grolsch (listed on Amsterdam Stock Exchange)
Buyer Rationale platform in distinctive premium brands with provenance and global potential
Seller Rationale high valuation (84% premium to traded share price)
NBs deal comes in midst of rumours that SAB will be ‘white knight’ bidder for Scottish & Newcastle
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Grolsch is hardly a ‘must have’ acquisition for SABMiler, at this time. It’s a one brand business, has only 15% market share in its domestic market, and is only no. 21 in the global ranking; it hasn’t been growing in recent years and has quite a low EBITDA margin (< 20%). The valuation therefore, at x16 EBITDA, seems very high. On the other hand, this is part of an important pattern where the global beer groups are internationalizing premium beers with authentic national or regional origin. One can anticipate many more deals like this one in the future.

SAB has a strategy of making add-on acquisitions of national or regional brands, especially where, as in the case of Grolsch, a modern factory with spare capacity is part of the deal. Apparently distinctive west European brands are defining the premium segment in developing markets, with Beck’s being the classic example, so maybe Grolsch is indeed a platform for global growth for SAB, in that segment. It is undoubtedly a distinctive Dutch brand with a lot of provenance, which SAB doesn’t yet have in its portfolio. There also seems to be a special opportunity in the South African market – SAB would dearly love to cease being a seller of cheap beer, at home.

But why is SAB paying so much? The traded share price of Grolsch was closer to x10 EBITDA, which surely reflected poor performance and expectations. Wouldn’t it have been enough to offer a 40% premium, rather than 80% ? To be fair, SAB has a history of paying a very high price for brands, then looking back a few years later and saying they could have paid even more. Tyskie in Poland, that country’s no.1 brand, is the classic example.

On the other hand, maybe a few € 100 mln or so, in overpayment, is a small price to pay, for a giant like SAB, to really put a spanner in Carlsberg and Heineken’s works vis-à-vis Scottish & Newcastle, where the valuation is closer to x14 EBITDA ? Graham Mackay is showing his anglophilism here.

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Size (€ mln) 815
Sector brewing
Asset Quality Holland no.2 branded
Seller mid-cap plc
Buyer large plc
P/S 2,8
P/Ebitda 15,7
Type enterprise value
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