Molson Coors has developed a taste for emerging-markets light, spending $3.5-billion (U.S.) on StarBev, a central and Eastern European outfit. But the U.S.-Canadian brewer's stock drooped. Investors may be worrying about the limited scale of cost savings, the fact that the private-equity seller is probably making a sweet return, and that Molson is suddenly big in a fairly mature region that's still nursing a financial-crisis hangover.
At €2.65-billion, the purchase price is roughly 11 times the €241-million of EBITDA (earnings before interest, taxes, depreciation and amortization) that StarBev generated last year. That's comparatively disciplined for an industry where consolidation means M&A multiples for the few remaining targets have soared. Beer deals since 2008 have commanded an average 11.8 times, Société Générale data shows, with Kirin paying an eye-watering 15.7 times in Brazil last year.
The synergy case is weaker. The Coors Light brewer can only promise $50-million of cost savings, or about 5 per cent of the target's sales. That's weak versus other recent beer deals, which SocGen reckons were fortified with synergies of an average 7.4 per cent. But with no presence on the ground already, cost synergies were bound to be restricted. As for the potential to boost sales, it is debatable whether Molson can persuade Prague intellectuals to drink Carling lager, though StarBev's standout brand, Staropramen, may thrive in Molson's network.
StarBev's markets include some of the world's thirstiest, such as the Czech Republic, which is already the world leader in per-capita beer consumption. So there won't be the fast volume growth off a low base promised by certain Latin American, African or Asian emerging markets. But Molson reckons StarBev's markets will still deliver 2 per cent annual growth out to 2016 – against falls back home. And its 34 per cent EBITDA margins are markedly healthier than those at some hotly pursued Chinese firms, for example.
CVC, the buyout firm, snapped up StarBev in 2009, from a frantically deleveraging Anheuser-Busch InBev. CVC's returns are opaque – and could later be juiced by debt convertible into Molson shares. But even without that kicker, CVC must be making a healthy return to sell out so quickly.