2016 has been a 'vintage' year for food and drink M&A - Rothschild

Akeel Sachak - Rothschild global head of consumer, managing director

2016 is drawing to a close and many will be pleased to see the back of it but for those who operate in the world of M&A, it hasn’t been so bad – indeed, there are many reasons why it has been a pretty exceptional vintage.

The last week alone saw us do a $7.3bn deal for Asahi, a dizzyingly complex £1.8bn purchase of Punch for Patron and Heineken, a partnership between Sipsmith and Beam Suntory and assist Coke on reaching an amicable divorce from AB InBev in relation to its various Coke bottling assets, including a $3.2bn stake in Coca-Cola Beverages Africa.

Activity in the food and beverage space, on a global basis, has been very active over the past 12 months with the announcement of many long anticipated mega-deals, such as AB InBev’s $110bn acquisition of SAB Miller, British American Tobacco’s attempt to take full control of Reynolds American for $56bn, Danone’s $12bn acquisition of Whitewave and our client Bayer’s $66bn bid for Monsanto.

These mega-deals have far reaching consequences for brands and their stakeholders, while at the same time presenting follow-on opportunities for well-capitalised acquirers able to buy previously unattainable assets – purchasers such as Asahi, which acquired Peroni, Grolsch and Meantime for €3bn in September, which turned out to be an appetiser for the just announced acquisition of the SAB Miller Central and Eastern European beer business. These together, take Asahi from nowhere in Europe to becoming the third largest European brewer.

‘We expect other blue-chip corporates to take a more imaginative approach to managing underachieving businesses and focus on their core’

It looks as if AB InBev’s cousin 3G, may soon set off a similar merry-go-round in food with its rumoured ambition to combine Kraft Heinz with Mondelez. But despite the notable successes, they don’t all make it across the line, as we saw when advising McCormick on its thwarted attempt to acquire Premier Foods in April, or the aborted Mondelez tilt for Hershey.

Corporates continue to look for creative solutions to manage their portfolios and are readier than ever to endure the headache of carving out brands and subsidiaries that would thrive under different ownership or require capabilities that sit outside their organisation. At Rothschild, we worked with Nestlé, the world’s leading nutrition, health and wellness company when they took this radical approach to their challenging ice cream business. The result was the formation of Froneri, a €3bn joint venture with PAI’s R&R Ice Cream across five continents. Looking forward, we expect other blue-chip corporates to take a more imaginative approach to managing underachieving businesses and focus on their core.

At Rothschild we have continued to maintain our penchant for handling some of the world’s largest and most complex transactions, such as the €23bn three-way merger of Coca-Cola European Partners finally completed in June, the $4bn sale of Americana by the Al Khair family in Kuwait which had an even longer timeline to completion last month and was the largest ever consumer M&A deal in the GCC region, and the $2bn sale of Hostess in the US to a SPAC controlled by Gores Group.

Size isn’t everything of course, and our core mid-market client base was also very active: we advised families, corporates and private equity firms across the consumer space using our global network and experience of doing more deals than anyone else to deliver fantastic results for our clients. These include Lion Capital on the £420m sale of ghd to Coty at a multiple of 13x EBITDA and the €652m sale of Grand Marnier to Campari at a multiple in excess of 22x.

Being a banker, and hence an eternal optimist, we look at the opportunities presented to us by some of the challenges and it’s clear that many consumer businesses and investors are thinking the same way. The shock of Brexit in June has weakened sterling, provoking a major showdown with the retailers that is, in turn, bringing about a wave of inflation that will be felt in pockets in 2017. At the same time international acquirers are looking with renewed interest at cheaper UK and European targets.

There is of course plenty of event risk in the year ahead, as we wait to see the detail of the Brexit negotiations and the extent of any dip in consumer demand due to inflation. We may soon be looking back wistfully on the fine 2016 vintage, but we should remember that food and beverage has always been a resilient sector.

Encouraged by demanding consumers, and producers looking for growth in core established markets (with emerging markets no longer providing them with the growth they need to show), premiumisation, innovation and brand investment has stepped up. Desirable businesses that play to the prevailing trends are going to find a deep universe of well-capitalised trade and private equity buyers willing to pay attractive multiples for quality assets as evidenced by Amplify/Tyrrells, Piper/Propercorn and, most recently, Beam Suntory/Sipsmith.