Will Heineken or Kirin win race to strong no.2 in Brazil brewing ?
- June 11, 2012
||press reports, since February 2012
||Petropolis Group (Brazil), no.3 domestic brewer
||candidates include Kirin, Heineken
||private shareholders of Petropolis
||to achieve strong no.2 market position in Brazil
||attractive valuation and deal structure
||Kirin Holdings acquired Brazil's no.2 brewer, Schincariol, in 2011
Following the trajectory in other major markets, Brazil looks ripe for a beer consolidation, to create a stronger no.2 behind AmBev. It's an open question however as to whether Heineken or Kirin will win the race; the key could be in deal structuring and valuation.
Brazil is the fourth largest global beer market. With a 2010 growth rate of some 10%, annual per capita consumption at a still modest 54 litres, and favourable demographics, it's also one of the most attractive.
Petropolis is the last major player to remain independent (see chart). M&A history would suggest however that either Heineken, or Kirin of Japan will take them out within a few years, in order to become the clear no.2 player in Brazil.
In the first half of 2012, both of these international groups have been rumoured to be preparing a bid for Petropolis, a privately-held group about whom little financial information is available.
Through acquiring FEMSA of Mexico in 2010, Heineken made a step -change in its market position in the Americas, becoming no.2 in Mexico behind Grupo Modelo, and a significant player in Brazil.
Kirin achieved a similar feat in 2011, when it acquired a majority stake in Schincariol, from its founding family, in what turned into an acrimonious stand-off with the target's minority shareholders.
It's unclear which of the two groups will eventually win over Petropolis; if there's any clue in deal structuring however, then Heineken might have the upper hand.
Kirin's purchase of Schincariol was both troubled and fully -priced. According to Kirin itself, on the basis of normalised LTM03/2011 EBITDA the enterprise valuation came to x15,7 EBITDA, or nearly x3 net sales revenue (see valuation).
By contrast Heineken acquired FEMSA in an all-share deal, through which it surrendered about 20% of its diluted equity, but at the relatively low valuation of x10,9 EBITDA (Glenboden's estimate).
That valuation can only reflect the fact that the economic value of Heineken's shares was worth more to the owners of FEMSA than the equivalent in cash. Perhaps Heineken can replicate such a deal structure with Petropolis ?