MPI. Industry Update Q Beverage Industry. Valuation Opinions & Transaction Advisory.

Transcription

1 Valuation Opinions & Transaction Advisory Industry Update Q Beverage Industry

2 Contents 02 Industry Overview Consolidation, Decreasing Soda Consumption and Premiumization Trends 03 In the News Brown-Forman CIO turns to technology to increase market share Craft beer margins continue to bring success to beer wholesalers FDA regulation could kill the caffeine buzz and affect major industry players Two giants in the beer industry are facing increased competition Regulations from the London Metal Exchange could affect industry suppliers PepsiCo looks to revolutionize industry with favorable aromas Increases in health-conscious consumers have had an effect on Dr Pepper Snapple 04 Key Indicators Commodity Prices Beverage Consumption Craft Beer Production 05 M&A Overview U.S. Activity Highlighted Transactions Industry Trends Recent Transactions 07 Public Market Data Comparable metrics of selected public companies in the Beverage Industry 09 About 1

3 Industry Overview This publication focuses on major events, developments and trends happening within the brewery, wine and spirits, cold beverage (such as soft drinks and energy drinks) and hot beverage (coffee and tea) segments of the Beverage Industry. The majority of the companies operating within the Beverage Industry are currently in the mature stage of their lifecycles. Beverage sub-sectors are generally dominated by a few sizable players which are constantly faced with internal and external challenges. Presently, the following trends are reshaping the industry: Limited organic growth opportunities: While many members of the industry constantly aim to diversify their offerings, the major players have increasingly turned to consolidation as a way to gain market share and achieve economies of scale throughout their operations. Drop in per capita carbonated soft drink (CSD) consumption: As health-conscious consumers have drifted away from carbonated soft drinks (soda), major players have responded by enlarging their product ranges and expanding into sports and energy drinks, ready-to-drink tea and coffee, bottled water and newer beverage categories. Trend toward premiumization: Consumers have become increasingly discriminating about what they purchase and as a result premium alcoholic beverages and craft beers are gaining in popularity. These premium products generate higher margins and their growth is outpacing the industry as a whole. As the stock price performance graph below suggests, the Beverage Industry as a whole has outpaced the S&P 500 over the last five years, with the non-alcoholic segment leading the way % Quarterly Benchmark Performance* Breweries Wine & Spirits Non-Alcoholic S&P % % 300.0% 250.0% % 200.0% 150.0% +78.6% +44.2% 100.0% 50.0% 0.0% Source: S&P Capital IQ. *Includes selected companies presented on pages 7-8. Chart above is presented on an index basis: Q

4 In the News The CIO of Brown-Forman, a global purveyor of wine and spirits, deploys a potent mix of technologies to engage customers and transform internal collaboration. Read the full story here. Craft [beer] s higher margins are a welcome addition, helping to offset rising costs and shrinking margins from lower-priced brands. But wholesalers concede that the thriving craft [beer] category has its challenges. Read the full story here. The FDA s focus on energy drinks is broader than just the question of caffeine in the product. Many energy drink companies classify their products as dietary supplements Under federal law, this shifts the burden of proof as to the safety of the product. Read the full story here. The beer industry s biggest players, Anheuser-Busch InBev and MillerCoors, whose mega-brands have dominated America s tap handles and supermarket shelves for decades, are being battered by a new wave of competition from inside and outside the beer market and starting to lose their grip. Read thefullstory here. A group of aluminum users that includes large beer and soda companies said that proposed changes to the London Metal Exchange s metals warehousing rules fall short of resolving the aluminumstorage bottlenecksplaguing theindustry. Read thefull storyhere. PepsiCo is seeking to patent a method of encapsulating aromas within beverage packaging to entice US consumers with favorable aromas before they drink, say, juices or coffees Research has shown that aromas can in some instances have substantial impact on consumer perception of the taste of a beverage or other food, trigger a favorable emotional response, elicit a favorite memory, and/or otherwiseimprove overall product performance. Read thefullstory here. Dr Pepper Snapple (DPS) CEO Larry Young says the firm is very concerned by US sales declines in diet sodas and the company s below average performance in that category DPS had been hit by terrible weather in H1 2013, attacks on soft drinks linked to obesity, different municipalities trying to ban larger-sized drinks,certain packages or sugared brands. Read thefull storyhere. 3

5 Key Indicators Commodity Prices During the Past 12 Months Indexed Return Coffee Sugar Cocoa 120 Beverage Consumption per Capita Indexed Return Actual Forecast Tea Consumption Alcohol Consumption Soda Consumption Coffee Consumption Craft Beer Production ($M) 6, , , , , , Sources: S&P Capital IQ, IBISWorld. 4

6 M&A Overview U.S. Activity In the third quarter, total U.S. volume and deal count were up approximately 22% and 7%, respectively, from Q Although overall market activity saw slight improvements in Q3, M&A is still relatively quiet compared to pre-recessionary levels. However, Q was extremely busy with deals that were in motion to close on or before December 31 st, ahead of anticipated capital gains increases, which likely induced companies to accelerate plans. In recent quarters, growth in deal count has exceeded volume indicating a much more active middle market and smaller deal sizes. It also suggests that buyers are still hesitant to pull the trigger on larger deals. Highlighted Transactions Heineken Sells Hartwall Unit to Royal Unibrew Heineken divested its Finnish drinks business, which has about 850 employees and makes cider, wine and spirits as well as beer and soft drinks, to cut down on its debt. Royal Unibrew also agreed to brew Heineken beer for Finland, Estonia, Latvia and Lithuania for the next 10 years. Hartwall s future development is best served as part of Royal Unibrew, a major beverage company in the Nordics and Baltics region. Enterprise Value: $613.3 million, Revenue Multiple: 1.6x, EBITDA multiple: 9.4x. Suntory to Buy Lucozade, Ribena from GlaxoSmithKline Suntory Beverage & Food Ltd. entered into an agreement to purchase GlaxoSmithKline s popular sports energy drink Lucozade and liquid concentrate Rubina on September 9, The transaction is part of Suntory s strategy to reduce reliance on its domestic market. Enterprise Value: $2.1 billion, RevenueMultiple: 2.7x. 5

7 M&A Overview (Continued) Industry Trends $90.0 $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $30.4 Industry M&A Activity (Announced Transactions) $77.9 Volume ($bn) $39.4 $25.0 Deal Count $ x 16.0x 14.0x 12.0x 10.0x 8.0x 6.0x 13.2x 11.3x Median M&A EBITDA Multiples Median EBITDA Multiple Avg. EBITDA 16.9x 10.6x 9.6x 8.6x 9.3x 9.4x $20.0 $10.0 $16.0 $11.5 $ x 2.0x $ YTD 0 0.0x YTD Recent Transactions Announced Date Buyer Target Target Description 9/9/2013 Suntory Beverage & Food Limited GlaxoSmithKline plc, Lucozade and Ribena Brands As of September, 2013, Lucozade and Ribena Brands were acquired by Suntory Beverage & Food Limited. 9/2/2013 Puget Technologies,Inc B-29 Energy Inc. B-29 Energy Inc. manufactures carbonated beverages/energy drinks. 7/24/2013 Crestview Partners, L.P. DS Waters of America, Inc. DS Waters of America, Inc. provides bottled water for homes, offices, restaurants, food service organizations, convenience stores, and retail locations in the United States. 7/11/2013 Royal Unibrew A/S Hartwall Ltd. Hartwall Ltd. produces beverages in Finland, primarily offering beer, ciders, bottled water, soft drinks, energy drinks, juices, and specialty beverages. The company also imports and distributes wines and alcoholic beverages. 6/28/2013 Coca-Cola FEMSA S.A.B de C.V. Companhia Fluminense de Refrigerantes, S.A. 6/27/2013 Gruppo Editoriale L' Espresso Caffita System Spa SpA Companhia Fluminense de Refrigerantes, S.A. manufactures beer and still beverages and distributes sparkling drinks. The company was founded in 1949 and is based in Brazil. Caffita System Spa engages in the production and sale of coffee capsules. 6/16/2013 Rhone Capital, L.L.C. Mayanot Eden Ltd. Mayanot Eden Ltd. engages in the production, marketing, and distribution of bottled water in Israel. 5/23/2013 China Huiyuan Juice Group Limited China Huiyuan Industry Holding Limited China Huiyuan Industry Holding Limited produces and sells fruit juice concentrates and purees in China. 4/12/2013 Distell Group Limited Burn Stewart Distillers Ltd. Burn Stewart Distillers Ltd. is engaged in the distillation, blending, bottling, marketing, and sale of Scottish whiskey. 3/28/2013 Joh. A. Benckiser GmbH; Donata Holding SE; JAB Holdings B.V.; Parentes Holding SE D.E Master Blenders 1753 N.V. D.E MASTER BLENDERS 1753 N.V. produces and sells coffee and tea products for retail and out of home markets in Europe, Brazil, Australia, Thailand, and internationally. 3/12/2013 LDC Ltd. Fever-Tree Ltd Fever-Tree Ltd. produces tonic water, ginger ale, lemonade, Sicilian lemonade, sparkling lemon, ginger beer, light ginger beer, and soda water. It also offers various cocktails, including vodka, gin and whiskey based drinks and non alcoholic cocktails. 2/13/2013 Constellation Brands Inc. Compañía Cervecera de Coahuila, S.A. de C.V. 2/6/2013 Coca-Cola West Co., Ltd. Minami kyushu Coca-Cola Bottling Co., Ltd. Compañía Cervecera de Coahuila, S.A. de C.V. is based in Nava, Mexico and brews a brand portfolio which includes Corona Extra, Corona Light, Victoria, Pacifico, Modelo Espcial and Negra Modelo. Minami Kyushu Coca-Cola Bottling Co., Ltd. manufactures soft drinks and is based in Kumamoto, Japan. Source: S&P Capital IQ. 6

8 Public Market Data (1) Company 9/30/ Week Enterprise EV/EBITDA EBITDA Margin Market Cap/Earnings Consensus Growth (4) Close (2) High Low Value (EV) (3) LTM NFY LTM NFY LTM NFY EBITDA EPS Breweries Anheuser-Busch InBev SA/NV , x 9.1x 38.7% 39.2% 8.6x 8.8x 11.4% 10.1% Big Rock Brewery Inc x NA 17.5% NA 27.8x NA NA NA Boston Beer Co. Inc , x 21.8x 19.8% 19.4% NM NM 21.0% 20.4% Carlsberg A/S , x 9.1x 19.2% 20.6% 19.2x 15.5x 3.4% 8.2% Craft Brew Alliance, Inc x 21.0x 6.4% 6.9% NM 108.4x NA 44.0% Heineken NV , x 10.3x 19.9% 21.8% 10.7x 20.4x 5.5% 3.9% Molson Coors Brewing Company , x 9.8x 19.3% 31.4% 18.5x 15.5x (0.5%) 3.0% SABMiller plc , x 9.1x 32.0% 29.6% 14.7x 14.0x 3.2% 8.1% Tsingtao Brewery Company Limited , x 20.1x 10.6% 11.3% 34.1x 36.3x 12.6% 13.8% Median 11.9x 10.1x 19.3% 21.2% 18.5x 15.5x 5.5% 9.2% Wine & Spirits Beam, Inc , x 16.0x 30.3% 31.0% 27.5x 26.0x 6.1% 8.9% Brown-Forman Corporation , x 14.9x 32.7% 25.6% 24.5x 22.7x NA NA Constellation Brands Inc , x 11.3x 25.1% 28.1% 6.1x 5.7x 34.4% 30.2% Diageo plc , x 14.5x 33.7% 34.2% 19.8x 18.3x 7.0% 7.5% Pernod-Ricard SA , x 13.7x 28.8% 28.6% 20.3x 19.0x 3.4% 9.8% Median 16.2x 14.5x 30.3% 28.6% 20.3x 19.0x 6.6% 9.4% Median EBITDA Multiples - Breweries Median EBITDA Multiples - Wine & Spirits 20.0x 18.0x 16.0x 14.0x 12.0x 10.0x 8.0x 6.0x 4.0x 2.0x 0.0x 12.3x 11.9x 9.7x 8.0x 8.8x 10.1x 10.6x LTM x 18.0x 16.0x 14.0x 12.0x 10.0x 8.0x 6.0x 4.0x 2.0x 0.0x 16.2x 15.2x 13.3x 12.6x 13.4x 12.9x 11.1x LTM 2013 Average of Medians (10.2x) Average of Medians (13.5x) 7

9 Public Market Data (1) Company 9/30/ Week Enterprise EV/EBITDA EBITDA Margin Market Cap/Earnings Consensus Growth (4) Close (2) High Low Value (EV) (3) LTM NFY LTM NFY LTM NFY EBITDA EPS Non-Alcoholic Beverages A.G.Barr p.l.c x 13.6x 17.7% 18.5% 25.3x 21.8x 9.6% 6.7% Cott Corporation , x 6.7x 9.2% 9.4% 24.2x 21.5x (1.1%) 0.4% Dr Pepper Snapple Group, Inc , x 8.9x 21.4% 21.6% 14.3x 14.4x 0.6% 5.9% Farmer Brothers Co x NA 6.1% NA NM NA NA NA Green Mountain Coffee Roasters, Inc , x 11.1x 22.6% 23.9% 25.3x 24.5x 23.9% 25.4% Monster Beverage Corporation , x 13.8x 26.1% 27.0% 26.5x 25.2x 9.8% 13.6% National Beverage Corp x NA 12.1% NM 18.6x NA NA 3.3% Pepsico, Inc , x 11.2x 18.3% 19.3% 18.4x 18.5x 5.2% 7.2% Starbucks Corporation , x 15.2x 19.2% 22.2% 33.6x 28.7x 19.5% 20.2% The Coca-Cola Company , x 13.6x 27.6% 28.7% 19.2x 18.3x 3.7% 5.4% Median 11.8x 12.4x 18.8% 21.9% 24.2x 21.7x 7.4% 6.7% Median EBITDA Multiples - Non-Alcoholic 20.0x 18.0x 16.0x 14.0x 12.0x 10.0x 8.0x 6.0x 4.0x 2.0x 0.0x 14.2x 10.3x 10.7x 10.7x 10.0x 11.6x 7.6x LTM 2013 Average of Medians (11.2x) Notes: (1) Source: As reported by S&P Capital IQ. (2) Reported in local currency. (3) In millions of local currency. (4) Represents two-year analyst estimates. Definitions: Enterprise Value defined by S&P Capital IQ as market cap. + total debt + preferred equity + total minority interest cash and equivalents LTM latest twelve months. EBITDA adjusted earnings before interest, taxes, depreciation and amortization. NFY next fiscal year. EPS earnings per share. NA not available, NM not meaningful. 8

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