A Few More Observations From Littleton
First on the VERY scary front… if one were a betting person, one would bet that major war is coming to the Middle East. The present estimates are Iran is 6 to 12 months away from a nuclear bomb… and if you take the Iranians at their word, nothing is going to stop them from this attempt. Obama has stated that he will not allow the Iranians to get a nuclear bomb (one can debate how much his bluster matters but he has stated it many times and it is official US policy). For the past few years the Israelis have been warning anyone who will listen that they cannot live with a nuclear-armed Iran… basically imploring the world to halt this before they have to take matters into their own hands. I’m afraid that time is coming sooner rather than later… and no matter what actions the US takes, we will be drawn into this.
Very possibly this will be a war like the West hasn’t experienced in decades… it could turn into a religious war the likes of which the world hasn’t experienced for hundreds of years. The Iranians are promising to bring it to our shores. They have threatened to unleash their terrorist proxies across the globe. With the turmoil of the Arab Spring, Israel may (almost certainly will) find itself attacked on many fronts. Countries in the region will likely be drawn in regardless of their ruler’s desires. The jihadists streamed into Iraq to fight the Great Satan (that’s what they call us)… the rush to exterminate the Little Satan will likely draw an even larger flood, especially if they sense this might be the opportunity to finally push the Israelis into the sea. Israel’s next door neighbor, Egypt, just elected Islamists to over 75% of their parliament. Does anyone really think they’re just going to sit on the sideline? If this thing starts, the odds of it spinning out of control are very high indeed. Do the Israelis go nuclear to protect their very existence? Would you? Will it matter if they do? Or do they quietly accept extinction? That may be the choice they face.
Regardless of steps taken, or bluster exhaled, if it happens THE PRICE OF FUEL WILL MOST ASSUREDLY ROCKET UP. The Saudis have stated they will make up for any Iranian oil… but there will be an incredible spike in prices regardless. And the Saudis, home to more than a couple jihadists, may find it difficult to control their own situation. Protect yourself however you can from this coming fuel Armageddon. Estimates are that if the Israelis attack, it happens before the fall (perhaps sooner rather than later)… and then Katy bar the door.
And to quote Rahm Emanuel, “never let a crisis go to waste”… if this happens use the opportunity to re-set delivery systems for effective and efficient service levels across the board. Have a plan in place NOW. Spend some time with your management team thinking about how you can turn these events to your advantage. Neither you nor I can stop what is coming… at least prepare your business for a very likely and very scary future… and it is only months away (if that).
BETTER TRENDS AND MORE PRESSURE ON DEALS
On a more positive front, it seems like deal flow is kicking into high gear… and the multiples are heading up! Big time. It seems the dogs have left the porch (big and small) and if one wants to run with the pack, action is required.
Both of these trends somewhat surprise me… I wouldn’t have predicted it. (that is called honesty. I could say I saw it all along but that simply isn’t the case). I guess there are a number of reasons deals are jumping…
- Taxes are of course a big deal. If Obama wins reelection, capital gains taxes are going up at least 100%, at least another 15% lost to Big Government… a total of 30% off the top! Regardless of the size of the deal, this takes A LOT off the top of any sale. Heck, if Obama wins reelection, dang near every tax is going up… but that’s a story for another day ;-)
- It seems a lot of smaller and mid-sized folks have looked at the chess board and have determined the odds are great they don’t have a long-term place on the board. Therefore they are more amenable to an exit… especially considering the first point and the high demand side of the equation… they certainly are in demand.
- Another MAJOR factor in driving this is the multiples being offered. Buyers have also looked at the chess board and decided if they want the opportunity to remain, they have to get these deals done… and to give reluctant sellers a little push, the multiples are WAY up. The days of ANY solely economic purchase are long gone… these deals are all strategic and the prices being offered reflects this. Get use to longer payback periods, that’s just the way it is. That or go back to the porch while the other dogs run.
- In the ABI network specifically, there are a lot of smaller wholesalers… and whether the three points raised above or ABI’s muscle flexing, many are getting out while the getting’s good.
- It seems many larger wholesalers (MC and ABI) are also trying to strengthen and expand their footprints versus their fellow large distribs. Once someone gets a deal done, it’s done and a wanna-be purchaser will most likely be forever out of that specific territory. Makes one move whether one wants to or not.
If you fit into any of these categories let Steve Cook and I help. As a selling client once noted, you only get one chance to get the sale of your business right. And if you’re a prospective buyer, you might (and this is a big maybe!) get more chances but the impact of some less than optimal choices will haunt you and your business for years to come.
In some cases, potential buying opportunities have been squandered due to basic human nature.
- You never considered your options or thought they were limited.
- You were not proactive and got “left in the dust.” – “I would have, but....” You were still sleeping on the porch while the other dogs were long gone.
- You didn’t get a “professional opinion.” I can do this myself.
- Change is scary so inertia settled in.
- Don’t have a plan or the plan fails to consider outside forces.
“You don’t know, what you don’t know” That is a truism which affects us all.
We don’t claim to bring any magic to the table … just honesty, integrity, objectivity and an intimate understanding of every aspect of this industry. And the investment in our services is not as much as you might think… Bringing high value has always been the goal and our mantra.… whether it’s M&A work or operational improvement. Bringing high value ensures our long-term success, and we don’t just talk the talk, we walk the walk. Cook and I can help you navigate these waters.
Many deals could also involve the possibility of brands not transferring. Whether a buyer or a seller there are strategies and methods to address this… but it is one point in time when suppliers have the maximum leverage and they most assuredly will attempt to steer the process to their liking. Who can blame them? Again, timing is critical!
Right now it looks like there might be a flood of deals for the rest of the year. If this is your course, don’t delay. One can always attempt to hurry the process along but there is one area over which we have no control… brewery approvals. Brewery approvals are seldom timely… ABI is taking an incredibly long time to approve deals… and that’s for some “anchors” which have the green light from the highest authorities. Don’t push this off until late in the year when there may be a backlog of approvals waiting. If you want to do this, you’ll want to close this year. You don’t want to be sweating bullets waiting for approvals as the clock ticks towards midnight on December 31st. The tax implications would be profound. And it gives suppliers the opportunity to extract an extra pound of flesh as you become more pliable as this deadline approaches. Don’t delay if this is your path… there is nothing to be gained by waiting.
And lastly, you’ve got to love beer wholesalers… after my last few posts where I attempt to warn wholesalers about the existential threat posed by some ABI corporate moves I received quite a few emails (mainly from ABI distributors) which in general read something like…
“John, I agree with everything you say but I’m still looking to buy… keep me in mind”
Gotta love it.