Glenboden M & A Originations

Next M&A cycle gets lift from Jim Beam acquisition

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Origination Status buyer and seller announcements, January 2014
Asset Beam Inc. (USA), no. 4 global premium spirits producer
Buyer Suntory Holdings Ltd. (Japan), no. 1 Japanese beverages producer with international expansion
Seller public shareholders of Beam Inc.
Buyer Rationale global brands and distribution network
Seller Rationale attractive valuation
NBs transaction consideration represents a 25% premium to Beam’s closing share price
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Suntory's acquisition of Jim Beam might underline that the next decade -cycle in M&A valuations is underway in FMCG, involving valuations north of x20 EBITDA. The difference in the 2010s could be that new pools of money from Asia will replace traditional LBOs and industry consolidations.

Suntory flush with cash ...Beam is tha latest and largest of a string of beverage acquisitions by Suntory as it pursues its global aspirations, following Orangina and Frucor in 2009, and Lucozade & Ribena in 2013.

From Beam's shareholders' point of view the rationale is compelling. That group is now in good shape financially, with net debt down to levels within the spirits industry norm (see profile); so it's a good time to sell.

The price is also attractive (see valuation), especially given Beam's flat growth rate. A multiple of 'above x20 EBITDA' has been announced, on an LTM basis. Taking 2012 numbers, that price is x23 EBITDA; but LTM might raise the figure - Beam's regular operating income is up 6% in 9M 2013.

... landmark deal for 2010s cycle ...Decade -cycles, in M&A just as in the broader economy, have occurred since the 80s. Around the middle of the decade vauations pick up, reaching a crescendo in the latter part of the decade before a downturn.

In the 2000s in FMCG the cycle began with e.g. Procter & Gamble buying Gillette in 2004 -5, for an EBITDA multiple x19, and reached a crescendo in 2007 -8 with deals like Danone buying Numico for a price significantly north of x20 EBITDA.

Suntory's purchase of Beam gives a lot of lift to the cycle for the 2010s - the fourth decade -cycle in a row since financial deregulation at the start of the 1980s.

... different this time ?Having recouped their post -2008 financial crisis losses, banks can increasingly weight their asset allocation into credit expansion for business, globally. That feeds through into higher M&A valuations.

Qualitatively, the difference this decade might be a tendancy towards new pools of money, coming mostly from Asia, replacing traditional LBOs or consolidation plays amongst industry encumbents, in M&A in Europe and north America.

There are clear examples of that already - not only Suntory's spending spree, but also Bright Foods from China (Weetabix deal) or Bahrain -based Investcorp (Tyrrells, Namet Gida investments).

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THIS LEAD'S VALUATION
Size (€ mln) 12.000
Sector spirits
Asset Quality global no.4 premium branded
Seller large plc
Buyer large plc
P/S 6,0
P/Ebitda >20,0
Type enterprise value
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