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« Anheuser Busch – InBev and Family Businesses | Main | Consolidation of the MillerCoors Markets »

More on Mergers

There’s been a lot more buzz about mergers since the recently announced mega-merger in the Northwest.  It will create a monster entity of 25+ million cases for beer… kicking up to 35 million cases when you include NAs.  A while back I wrote a more extensive piece regarding mergers here.  If you are considering the possibility, I recommend you also review it. 

Suppliers are beginning to push for more and more mergers because it accomplishes a number of their goals:

·                    It provides a means to consolidation.  Suppliers understand that wholesalers must become larger and more efficient if they are to remain viable entities and since very few seem to want to exit the industry; mergers can accomplish both goals while still meeting ownerships’ desires to remain in the game.

·                    In many cases the merged entity does not incur any additional debt.  This helps make the distributor stronger and from an ownership perspective, allows the dollar benefits of the operating efficiencies to flow into their pockets rather than the banks.  Of course from a supplier view-point, they too would prefer not to have their wholesalers burdened with excessive debt.  And the payback periods for many recent purchases is rather far out there.

For many wholesalers, these same goals can be met through a merger.  Of course mergers are far from easy to accomplish.  Among other things…

·                    They require a high degree of trust from all parties.  Often a third party… yes, that’s me ;-)… is useful in bridging the trust issues and representing the interests of all parties in the investigative and design phases.

·                    A common long-term financial goal.  Since in effect you are tying your financial futures together, you can’t have one party wanting to sell in 5 years and the other wanting to be around in 50.  If this is the case, the one wanting to sell in 5 years should just sell today.

·                    Similar operating goals.  Mergers tend to work better when all parties can step back from the day to day operations and hire professional management to run the place.  This is not always the case but it is difficult to merge when both parties want to be the ones running the show.  If the merger partners can direct the company from more of a board level, I believe it greatly increases the chances of success.  There are exceptions to this but ultimately however it is put together, all parties must have similar operating goals.

·                    Compromise.  As an owner you are used to running the show.  You don’t have to ask anyone about anything you do.  Want a new boat?  Go get one.  In a merged operation this is not the case.  This is not to say you still can’t run the boat and your mistress’s expenses through the company, it just has to be agreed upon, and made equal for all parties involved.  OK, that might be a rather extreme example but you understand what I’m saying.

·                    Although it is not required, it is also easier to merge when all parties involved are somewhat equal.  It is easier to merge two (or three or ?) equals than it is to merge a much larger organization with a much smaller one.  Often these are called mergers but in effect they are buy-outs.  Nothing wrong with that, just ensuring we are all using the same terminology.

That’s about it for the requirements for a successful merger.  Of course one of the prime reasons mergers don’t happen is that if either party(s) had their druthers, they’d rather buy the other guy out… not merge with them.  Thus you end up in a situation where both parties play a waiting game… often to the detriment of all.

These waiting games are a shame since in most cases all parties are financially viable so no one will be forced from the table.  But all of the financial advantages of the potential merger are wasted in this waiting game.  And without a huge debt burden to service, almost always the merged parties receive significant financial rewards for only minor compromises.  Well worth investigating.

One can even play the merger game as part of a larger grow-and-sell strategy whereby the merger partners grow specifically with the idea of a future sale in mind… “we are worth more together than separate”.  You go through the effort of putting these mergers together and the sum of this is worth far more than the separate parts.  Many large players would rather have someone else go through the first stages of consolidation and then they step in, rewarding the initial movers quite handsomely.

Is a merger for you and do you have a willing partner(s)?  I can’t say… but it is worth at least a brief analysis… they can be a very positive financial move.








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