Glenboden M & A Originations

Kirin acquisition of Lion Nathan confirms valuation benchmark in brewing

Priority Rating priority rating 3
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Origination Status management recommendation to shareholders, May 2009
Asset Lion Nathan Ltd (Australia), no.2 domestic brewer with 45% share
Buyer Kirin Holdings (Japan), no.2 domestic brewer with 25% share
Seller public shareholders of Lion Nathan
Buyer Rationale overseas expansion strategy, full control of associated entity
Seller Rationale acceptable valuation, lack of alternative buyers
NBs Kirin has owned 46% of the shares in Lion Nathan since 1998
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The race between Japan’s biggest brewers, for expansion in Australasia, is intense. Kirin appears to be in the lead, ahead of rivals Asahi and Suntory, especially after it completes its takeover of Lion Nathan to make that a wholly-owned subsidiary. As well as mapping the trajectory of Kirin’s M&A strategy, this deal provides an important valuation benchmark, for beer assets with Lion Nathan’s profile and market position.

Kirin is competing for Australasian acquisitions with Japanese rivals …The deal comes after Kirin bought a 20% strategic stake in San Miguel Brewery in the Philippines, in April. That transaction in turn responed to its rival Asahi’s purchase of 20% of China’s Tsingtao Brewery, from InBev, earlier in 2009.

… in brewing as well as soft drinks and dairyOutside the brewing sector, M&A competition between the three Japanese groups, each of whom are chasing ambitious overseas growth targets, has focused on soft drinks and dairy products, mainly in Australia and New Zealand.

In the last two years, Asahi has bought Schweppes Australia from Cadbury, the no.2 soft drinks producer in that market. Suntory, for its part, acquired Frucor, Australasia’s leading juice and energy drinks producer, from Danone in 2008.

Kirin has been more aggressive than its two rivals, however, having purchased both National Foods and Dairy Farmers, in Australia, in the same timeframe.

Future battlegrounds between these groups, in our view, in brewing at least, include Vietnam, Taiwan and possibly Thailand (given problems at ThaiBev).

Certainly deal activity will be intense, since the combined overseas incremental sales growth target, of these three Japanese giants, comes to about US$ 10 bln.

The valuation of the Lion Nathan deal confirms benchmarks …That Kirin is bidding to acquire the 54% of Lion Nathan’s shares, that it doesn’t already own, is no surprise, as the group has had a strategic stake in the business since 1998. What’s interesting, from an M&A originations perspective, besides the strategic trajectory which this deal maps, is the valuation.

Lion Nathan is the strong no.2 beer player in Australia, with about 45% market share; it’s also the no.1 brewer in New Zealand, with over 50%. This is a mature but high value business (see chart).

Management says that the valuation ‘compares favourably with recent precedent transactions’. The InBev acquisition of Anheuser-Busch has been cited in particular; that deal yielded an EBITDA multiple of 12,4 in 2008.

… ranging from single beer brands to global consolidations In comparison with the A-B deal, the Lion Nathan bid looks fully valued. Anheuser-Busch had market leading positions in the US and Mexico, and high-recognition international brands. It also provided the buyer, InBev, with a leap-frog to global market leadership, plus rich cost synergies.

More broadly, however, the Kirin offer to Lion Nathan’s shareholders is in the middle of the EBITDA multiple range, that of x12 – 16, recorded by Glenboden for recent brewing transactions. Those vary from premium international brands (Grolsch) to global consolidation deals (Scottish & Newcastle).

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THIS LEAD'S VALUATION
Size (€ mln) 4.600
Sector brewing
Asset Quality Australia no.2 branded
Seller large plc
Buyer large plc
P/S 3,9
P/Ebitda 13,8
Type enterprise value
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