The macroeconomic environment is encouraging buyers in beverages to be patient and prioritise three more conservative considerations, according to a research report this week.
A white paper from Rabobank, titled ‘The New Deal Environment’, recommends that companies should look at M&A as an area to “line up targets, get finances in order and, most importantly, identify the biggest long-term trends that you need to lay the groundwork for right now”. The approach is based on Rabobank’s belief that the current high cost of capital, coupled with “lower visibility into consumer behaviour”, has set the scene for a reset of M&A strategies.
In the meantime, the “white space at any cost” approach of using inorganic moves to fill either geographical or portfolio gaps has slowed markedly. Beverage companies should look instead to strengthen their existing distribution through “near-/friend-shoring”, reduce current levels of risk and target operating efficiencies.
“Deals that focus on cost savings, consolidation or de-risking have the green light to go now,” said Rabobank’s senior analyst for beverages, Jim Watson. “For other deals, now is the time for preparation, short-listing and building connections with brands, assets and technology that may be more attractive in a better growth environment.”
Several brand owners have been active in tightening their portfolios in recent months. Two months ago, Brown-Forman confirmed the planned divestment of vodka brand Finlandia to Coca-Cola HBC, days before Pernod Ricard announced the pending sale to Stock Spirits of the Clan Campbell Scotch whisky. Meanwhile, Beam Suntory CEO Albert Baladi told Global Drinks Intel last month that portfolio consolidation will remain on the table after he steps down from the role at the end of September.
In the beer category, the craft segment has seen a raft of offloads by the likes of Anheuser-Busch InBev and Constellation Brands this year.
