Beverage Giants Are Snatching Up Drink Brands, But The Bottom Of The Barrel Isn't In Sight

Recent M&A trends in the alcoholic beverage space highlight the popularity of craft beer.

Sterne Agee CRT believes that larger beer names will continue to look for craft buyout targets.

The Coca-Cola Co KO’s investment in Suja is an indication of its continued focus on exposure to young brands.

In a new report, Sterne Agee CRT analyst April Scee took a look at some of the recent M&A deals in the beverage space. Scee believes that the attitude of “if you can’t beat ‘em, buy ‘em” will continue among larger beverage companies in the near future.

Craft Beer Frenzy

Heineken recently announced the acquisition of a 50 percent stake in Lagunitas Brewery. Scee noted that craft beer now takes up 11 percent of the total beer market and that India Pale Ale (IPA) has been the fastest-growing segment.

Lagunitas has been a top performer, and the deal is not the first time that Heineken has acquired a high-growth competitor. The company already owns a 42 percent stake in United Breweries, a 95 percent stake in APB and a 100 percent stake in FEMSA’s beer business.

Outlook

Scee believes that the biggest beer players will likely continue to look for smaller craft acquisition targets. She pointed out that

Anheuser Busch Inbev SA (ADR)

BUD

already owns several regional beers and has developed its own craft beer brand, Shock Top, as well.

“If BUD/SAB deal happens, Craft could suffer, but there’s potential for a JAH-like structure where sister Brewers facilitate broader distribution, better leverage hard assets, and combine buying power, increasing the power of Craft,” Scee explained.

Is Carbonation Fizzling Out?

According to Scee, Coca-Cola’s recent acquisition of organic drink company Suja is further indication of the secular decline in carbonated soft drinks (CSDs).

While she acknowledged Coke’s recent investments in developed brands such as Monster Beverage Corporation MNST and Keurig Green Mountain Inc GMCR, she believes that acquisitions of younger brands such as Suja will continue to play a large part of Coke’s strategy moving forward.

Disclosure: The author holds no position in the stocks mentioned.

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