Beer Business Daily:
That’s what First Beverage Financial managing director John O’Connor said about two recent southeast distributor deals in Florida and North Carolina (likely talking about the Reyes purchase of Schenck in the blue-silver system, and R.A. Jeffrey’s purchase of Harris in the red system). “Chatter on the street was that the prices were extraordinarily high relative to what the market has seen in the past,” writes John. In fact we’ve heard north of $250 million for Schenck’s 13 million cases or +$19.20 a case, although prices weren’t disclosed. John notes that these rumors don’t “help the often discussed ‘price gap’ between buyers and sellers that has helped stall consolidation in the beer distribution network.” Indeed, now everybody wants that price.
But John points out that these deals were extraordinary for several reasons. “You have two well-capitalized buyers seemingly stepped up and met the seller’s price” due to “synergistic benefits from implementing a different, likely more profitable, operating model” plus “significant strategic benefits for owning that particular territory. Maybe they wanted to plant a flag that would lead to greater growth opportunities down the road,” ie Reyes establishing a beachhead in Florida.
Regardless of the sky high prices paid, John points out that the one thing we do know is that “they didn’t buy the past performance of the business; they bought the cash flows they think they will extract going forward. Figuring in these benefits to the buyers, you might have a different perspective of those big numbers. By the way, to the sellers, I say CONGRATS, your stars were seemingly aligned.”
But for the rest of distributors out there, the ” knight in shining armor” may or may not be out there for you, says John. “Don’t get me wrong, there is in almost every circumstance an optimal buyer. You have to bear in mind, however, that you may not be in the sexiest of locations. As such, the strategic premium might not be available to you.”
So how do you find that premium buyer? “You may need to cast a wider net and you may want assistance in this process,” says John, making the plug. Bottom line: “Find out what your business is really worth and more importantly, figure out how much your business is worth to someone else,” and “do your homework.” (Ed. Note: First Beverage’s Bill Anderson will be speaking at our Beer Summit in two short weeks in Miami. See ya there).