Glenboden M & A Originations

Royal Unibrew emerging as attractive regional beer platform after purchase in Poland

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Origination Status conditional company acquisition agreement signed, Feb. 2007;
Asset Browary Łomşa Sp. z o.o. (Poland), substantial brewer in north-east Poland;
Buyer Royal Unibrew A/S (Denmark), international beer and soft drinks producer;
Seller PPS Pepees SA (Poland) publicly-listed parent company of Łomşa;
Buyer Rationale part of strategy of buying regional beer brands in strategic markets (Nordic region, Poland, Russia);
Seller Rationale to focus on core business of starch processing (market leader with 30% share);
NBs Łomża provides 50% of Pepees’ sales and 70% of its operating profit.
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This deal provides an interesting example of the significance of ‘regions’ in the brewing business. Royal Unibrew is a growing regional player (regional meaning group of neighbouring countries), whose focus is on acquiring regional beer brands in its strategic markets (regional in the sense of part of one country). Given the importance of national and regional brands in the beer business, this is a very legitimate M&A strategy; it also allows Unibrew to tee itself up as a regional platform for one of the global groups, one day, if it can keep streamlining and hold out for long enough.

For many years Unibrew had been importing its flagship Faxe beer brand into Poland, but generally in the beer business importing will not give you a strategically significant position in a market, and Poland is no exception.

That market is dominated by domestic brands, partly because of consumer loyalty, and by supply chain costs, and partly thanks to government policy. Throughout the 1990s import duties on beer were high, allowing the state to sell its main brewing assets to big foreign beer groups at high valuations. Having paid so much and made so many investment promises, it was beholden on the acquirors to modernise these producers and develop their brands.

This policy worked fine with respect to the biggest brewing assets, but it left the small regional brewers somewhat orphaned, and they’ve consequently suffered from underinvestment.

It’s not really in the make-up of the big players to buy and develop regional brands, for obvious reasons of cannibalisation; this has left an opportunity for a mid-sized player to roll-up the best regional brands in Poland, and in 2005 Unibrew decided that they would be the ones to step up to the plate (or glass).

Unibrew now has three regional brands in Poland, called Brok, Strzelec and now Łomşa, focused respectively in the north-west, south-west (Kraków) and north-east of the country. Total volume is just over 1 mln hectolitres, of which Łomşa provides just over half, and total market share is probably still under 5%; but regional brands are not really about market share.

Unibrew has said that this deal will bring synergies, but these are surely hard to achieve, beyond purchasing, given this regional patchwork. To maximise synergies Unibrew would need to consolidate brewing in one place. Łomşa beer brewed not in Łomşa but 600 km away?

Generally it’s not easy for Unibrew to make money with this strategy. Yes, with regional brands you have lower marketing and supply-chain costs, but you also tend to have lower price points and demanding, low income consumers.

On the other hand, there is the longer term potential of more premium consumers turning to proximity brands, for example unpasteurised craft beers. Hence our point that the real upside for Unibrew is to hold out until the benefits of such longer term trends arrive.

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Size (€ mln) 30
Sector brewing
Asset Quality Poland regional branded
Seller small plc
Buyer mid-cap plc
P/S 1,6
P/Ebitda 10,4
Type enterprise value
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