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January 13, 2014 6:16 pm
Paying $14bn in cash should be enough to make Nobutada Saji, Suntory’s president and chairman, hit the bottle. But that is the steep price he has agreed to pay for Beam, the US producer of hard liquor brands such as Jim Beam and Maker’s Mark. With growth hard to come by in Japan and limited targets of real scale in the global spirits market, risky deals in faraway lands are the only way for Suntory to find growth.
Beam’s attractiveness is all about its bourbon. Beam has $2.5bn in total sales of which two-thirds are from “aged brown spirits”, a fancy term for bourbon and cognac. Half of its capital expenditure goes towards bourbon and its advertising spend for that type of whiskey has doubled in the past two years. Bourbon is now the fastest-growing large liquor category in the US, having grown in double-digits for the past three years. And Beam’s premium brands, Maker’s Mark and Knob Creek, are the fastest growing part of its portfolio.
And so it is no surprise, given its size and prospects, that Suntory paid a whopping 20 times operating cash flow for Beam. Suntory’s recent purchases of Orangina Schweppes, Lucozade and Ribena were about 11 times cash flow. And there will not be a bounty of overhead cost savings to drive that purchase multiple lower. Beam’s management is staying firmly in place in Chicago. Suntory, however, can be patient in realising whatever the combination benefits may be. Suntory is privately owned (though its non-alcoholic group was listed last year) so there will be no shareholder uprising to protest at the pricey deal terms.
In an era of fitful M&A, it is ironic that the Japanese are leading some of the most recent aggressive dealmaking. SoftBank spent $20bn acquiring Sprint last year and may be gunning for T-Mobile now. Tokyo Electron last year merged with Applied Materials in a $9bn deal. If the Japanese are now willing to chase growth through bold acquisitions it just may be safe for the rest of the world to follow.
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