Some thoughts on Acquistions
Acquisitions… something on almost every beer wholesaler’s mind, although the present national economy and tighter credit market has a few rethinking their plans. But the march towards consolidation and fewer distributors seems to be a foregone conclusion. I have talked to quite a few small to medium-sized distributors who make the case this consolidation actually leads to a net decrease in street-level wholesaler performance.
In many cases these wholesalers are correct; especially in smaller markets… having a hands-on owner/management team on the street will always have a positive impact. And in a smaller market there are generally fewer retailers to influence and personal relationships are often more important than in major metropolitan areas. In addition, if you sell 500,000 annual cases, each case is relatively more important than if you sell 15,000,000, and they are treated as such (and that is an on-going challenge for the larger distrib).
These distributors might have a valid point but my response is, “so what?” That all may be true but I certainly don’t see it having any impact on the reality of consolidation. Sorry folks, but as I’ve noted many times, our desires don’t change reality… and there is nothing on the horizon which would indicate anything to change this. The net benefits of consolidation seem to outweigh whatever costs there might be.
So that circles us back to acquisitions… without these, consolidation has no meaning. So do you play in this game or wait on the sidelines? First you need to look in the mirror and decide what you want… my belief is that if you want to remain in the beer distribution business for the long-term, you have no choice but to play and to play aggressively.
Since you are already in the game you are already shouldering the risks, whatever they are. This is true regardless of whether you’re MillerCoors or ABI (or even one of the remaining stand-alone Miller or Coors distribs). Think of that again… whatever system-wide risks face the beer distribution industry, you already have these risks. Period. The only difference an acquisition makes is that you put more capital at risk. Yes, I know… you “only” put more capital at risk. Easy to say when one’s name isn’t on the note ;-)
But if that is the way you feel then you’re probably not in this game for the long-term, regardless of what you might tell yourself. If you find yourself in this position I recommend you review your business and professional long-term goals. In actuality you might be more of a seller (or holder) than buyer.
My associate Steve Cook has a great analogy for what faces many beer wholesalers. He likens it to professional sports franchises. To win at the pro level, these owners perpetually investment spend on players, facilities, etc. to ensure they have the most competitive franchises. To succeed, these owners have a shared vision while all the time reevaluating their plans, players, resources and performance. Similarly, for wholesalers it’s about having the vision, financial resources, players, and operating models needed to sustain the franchise in the long run. Not all owners do this in sports or beer wholesaling… but ALL the owners who want to win the title do.
So that’s one of the first questions… do you truly want to win a title and will you do what is necessary to achieve this goal? Too many wholesalers are still fooling themselves with the old… “I’ll make an acquisition if I can steal it.” Wishful thinking… and these folks NEVER get a deal done. How many sports franchise owners build a title-winning team by only trying to get the cheapest talent available? Simply doesn’t work that way.
If you are going to stick around and get larger, you have to be willing to step to the plate and get deals done. Might you have to pay more than you “want”? Sure… so what? These are generally strategic deals and they need to be viewed from a strategic perspective. This is a very large, ever-changing chess board with many players. There is not a remote guarantee that you will achieve your goals even if you play your game well… but it is an absolute certainty that you won’t achieve them if you don’t try.
Many acquisitions are going at a price which requires a fair amount of additional capital, that’s where the folks with debt-free operations are at a substantial advantage. They can take the cash-flow from one operation to fund another for a couple of years until the new acquisition can cover its debt load.
So looking at this landscape, what should a wholesaler do? First and foremost, every beer distributor should focus on putting as much money as is possible to the bottom-line. Read that again 3 times and think of it every day. If in so much debt that it limits your ability to make acquisitions, pay it down. But if you believe significant inflation is coming our way (and it is difficult to see how it isn’t), being in debt is not necessarily a bad thing. Debtors “win” during times of rampant inflation. But too much debt limits your flexibility… find the right balance for you and your organization.
Run a high-performance, high-demand organization… don’t let your personal lifestyle expand until it is consuming all of your cash flow. Let your spouse and kids read that last one. You have no operating and acquisition flexibility if your lifestyle consumes everything your organization generates. Maximize your short- and long-term profitability. Even if values decrease (which I’m not certain is eminent), ensure you pocket more money than the decrease in value. If a strategic acquisition presents itself… get the deal done. If not, keep harvesting the cash-flow of your organization… thus you present yourself with as much a win-win scenario as is possible… regardless of what future comes racing your way.
Next post – are values heading south? I think not.