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For relaxing times; future of Suntory’s Beam Inc. acquisition far from on the rocks

Suntory’s surprise $16bn acquisition of American spirits manufacturer Beam Inc., one of the largest outbound deals in Japanese history, catapulted the company from a relatively obscure food and beverage company to the third largest premium spirits company in the world.

Announced in January 2014, the deal took the industry by surprise. However, faced with a shrinking domestic market, the acquisition was a culmination of Suntory’s efforts to expand its foreign operations after large-scale takeovers of Frucor and Orangina Schweppes in 2009, and Lucozade and Ribena in 2013. Furthermore, the company went so far as floating its food and non-alcoholic drinks company, Suntory Beverage & Food, in July 2013 to raise money for overseas acquisitions. When seen from this perspective, the deal seems less of a surprise and makes a lot of sense for Suntory.

Beam Inc. had become a mooted target for a takeover since becoming a stand-alone company in 2011 after Fortune Brands Inc. separated its business units by spinning-off Fortune Brands Home & Security and renaming the remaining business Beam Inc. The second top-selling spirits marketer in the US, Beam has a portfolio of globally recognized brands and had been outperforming the US spirits market for a number of years, an attractive proposition for a company looking to increase its foreign market share, particularly in the US. With the creation of Beam Suntory Inc., Suntory instantly increased its US market share from less than 1% to 11%.

Another bright spot for Suntory was the state of the US bourbon market and Beam’s positioning in it. Demonstrating significant growth, particularly in the super premium category, the US bourbon whiskey market has proven to be particularly buoyant in the last few years. With Beam’s bourbon portfolio covering categories ranging from “value” bourbon with Jim Beam, to “super premium” bourbon with Knob Creek, the company is ideally positioned to take advantage of a booming US market. In fact it already has been, increasing its North American net sales in 2013 by 42.9% compared to 2009. This compares extremely favorably with the 19.7% growth recorded in the American bourbon whiskey market across the same period.

Although, in May 2014, it was reported that Suntory Holdings Limited was being forced to raise over JPY800bn (around $8bn) in debt in order to finance its purchase, Suntory has a successful track record of integrating acquisitions (Orangina Schweppes and Frucor have proven particularly fruitful for Suntory). This, coupled with the familiarity the companies share through previous business relationships, means that it is highly likely Beam Suntory Inc. will become successful, solidifying its standing as one of the world’s leading premium spirits companies.

For a more in-depth analysis, check out my case study on the Beam Inc. acquisition

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