NJIT Big Data Visualization ContestBeverage Industry includes bottled water, juice, sparkling and...

Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public. Copyright © 2014 by Standard & Poor’s Financial Services LLC (S&P). All rights reserved.

Innovation Lab S&P Capital IQ

NJIT Big Data Visualization Contest

M&A Case Example -- Coca-Cola: Identifying acquisition target

2 Permission to reprint or distribute any content from this presentation requires the prior written approval of S&P Capital IQ. Not for distribution to the public.

Beverage Industry Landscape

Overview • The industry has a lengthy history of steady single-‐digit yearly sales and net-‐profit growth.

• Demand for beverages is driven by consumer tastes and demographics.

• The profitability of individual companies depends on effec>ve marke>ng.

• The Beverage Industry is dominated by a few sizeable players and compe>>on among them is oCen intense.

• The US industry is highly concentrated: the top 50 companies account for 90 percent of revenue.

• Top 5 firms in the beverage industry globally (by LTM 2013 total revenue results) are Pepsico, Coca-‐Cola, Anheuser-‐Busch, Heineken and Fomento Económico Mexicano.

*MSCI World Beverage Index (2009-‐2013)

15.7% CAGR

0%

5%

10%

15%

20%

2009 2010 2011 2012 2013

Total Revenue EBITDA

Gross Profit

1 Year Growth of the Global Beverage Industry

Sources: S&P Capital IQ Beverage Industry includes bottled water, juice, sparkling and still drinks, syrups, nectars, ready-to-drink and regular teas and coffees, dairy drinks, energy drinks, sports drinks, fruit powders, and alcoholic drinks such as beer, wine, cider and spirits.

Growth Forecast—Key Companies

EPS (2013-‐2017)

Growth Margin % (2013-‐2017)


The Market Environment and Timing The compeAAve environment creates pressure and opportunity

M&A drives Coca-‐Cola’s growth

Ø  Revenue CAGR 15.7% in 2009-‐2012

Ø  Three-‐year annualized change of 22.45% in opera>ng profit margin

Ø  In 2013 alone, it invested in 5 successful company mergers or acquisi>ons.

Ø  Compe>tor’s ac>ons create pressure

Ø  In 2011, PepsiCo made its largest interna>onal acquisi>on by purchasing 2/3 stake in a Russian food company.

Ø  PepsiCo to invest $5bn in Mexican beverage business

M&A in Food/beverage industry

M&A growth will support organic developments

Compe>>ve industry The >me to move forward is now

Timing op>miza>on

Ø  Funding is available Ø  Growth in North America

is stagna>ng. Ø  Increase focus on global

growth.

Key Financials of Coca-Cola (in $ mm except EPS)

Year 2011 2012 2013

Total Revenue 46,542 48,017 47,241.75*

Total assets 79,974 86,174 89,432

EBITDA 12,866 13,198 13,542.46*

Cash& ST Investment 14,035 16,558 20,506

Diluted EPS 1.85 1.97 2.09*

Sources: S&P Capital IQ * Estimated by S&P Capital IQ

SoC Drink Market Share in U.S.


How We Chose the M&A Target

Overview of the working process:

Selection Criteria: Attractiveness mapping based on TEV, EBITDA

margin, and Revenue Growth

Narrow it down to three:

Scoreboard based on

synergy effects, revenue, risk etc

Future Prospects:

Return on Equity forecast

Picking the target

Filtering the candidates:

Sources: S&P Capital IQ

? From the ahrac>veness map, we assess the poten>al targets on three key characteris>cs: • Total Enterprise Value: It provides accurate takeover valua>on of a company. Coca-‐Cola moved into Q4 2013 with $30.04 billion in cash & equivalents. • EBITDA Margin: Provides a clean view of a company’s core profitability • Revenue Growth, 5 Yr CAGR % Coca-‐Cola has an es>mated Revenue CAGR 4.41% within 3 years. Current markets are facing low growth, therefore strong prospect is a key factor


Narrow Down to Three Targets

Company Synergy Effects

Equity recomm. Revenue Investment

Risk Affordable Score

10

9

7

8

7

Select three candidates: •  Our five candidates are further narrowed down based on the scores in the

table above. The scores are calculated as weighted ranking of factor characteris>cs.

•  Using a valua>on es>mate, we found that Want Want China Holding is not an affordable target to Coca-‐Cola.

•  Coca-‐Cola once offered a coffee-‐flavored soC drink-‐Coca-‐Cola BlāK in U.S., but discon>nued it in 2008. However, it is s>ll a growing market worth to re-‐enter.

•  J.M.Smucker mainly engages in the manufacture and marke>ng of branded food products, which are not very relevant to Coca-‐Cola’s.

•  Energy drink is s>ll a very profitable market to Coca-‐Cola, where it has a very small market share of ~4%, v.s. Monster’s 39% market share.


Green Mountain Coffee Roasters

Arca Con>nental

Monster Beverage


Comparison of These Three Firms

Financials 2012 2013

TEV (mm) 7976.6 13018.7

Revenue (mm) 4334.5 4527.2

TEV/EBITDA 13.98 13.51

ROE 13.2% 14.6%

P/E 24.41 27.74

P/BV 3.81 3.22

Coca-‐Cola moved into Q4 2013 with $20.5 billion in cash & short term investment on its balance sheet. Before any other criteria is applied, the affordability of an acquisi>on is the priority. All these three firms are affordable. Ø  A lower TEV/EBITDA ra>o indicates the company might be undervalued, which can be viewed as a good acquisi>on candidate. Ø  The investors expect a higher Return on Equity (ROE) for high growth companies. Ø  Generally a high Price to EPS (P/E) ra>o means that investors are an>cipa>ng higher growth in the future. Ø  A lower Price to Book Value (P/BV) ra>o could mean that the stock is undervalued. However, it could also mean that something is

fundamentally wrong with the company.



TEV (mm) 5964.1 9222.5

Revenue (mm) 3859.2 4358.1


ROE 17.3% 19.7%

P/E 18.24 24.69

P/BV 2.61 4.05


TEV (mm) 9196.4 8386.6

Revenue (mm) 2060.7 2230.12


ROE 41.9% 35.7%

P/E 36.30 33.72

P/BV 17.40 12.20


Prospects for the Future

Free Cash Flow Forecasts

Ø  It is assumed that Coca-‐Cola would be able to maintain the firms current cash flow aCer acquisi>ons.

Ø  Arca Con>nental is the most ahrac>ve target when it comes to future FCF forecast, but the differences with others are not too significant. It is engaged in the manufacture, distribu>on, and sale of soC drinks in primarily Mexico, Argen>na, and Ecuador, which is beneficial from a standpoint of global growth.

Ø  Green Mountain generated more than $600 mm in FCF, which was resulted from net profit growth, lower inventory levels and lower capital investment. But its FCF varied significantly in the past 4 years and would vary as well in the near future from forecasts.

Ø  Monster Beverage comes first when their revenue growth rates for the next two years are compared. Whereas Green Mountain and Arca Con>nental saw larger growth rates in 2011 and 2012.


Revenue Growth Forecasts


Considering Risks of These Three Firms

•  Fomento Económico Mexicano represents a strong compe>tor in the Mexican market

•  Foreign governments come under pressure from industry/public calls to restrict beverage imports

•  Culture differences

•  It solely doing business in the North American market, which is well-‐known to Coca-‐Cola, thus reduces the risk

•  Its coffee and tea business is rela>vely new to Coca-‐Cola, which it once operated but failed. This increases opera>ng risk

•  Coca-‐Cola could strengthen its energy drinks porrolio by acquiring an already established player, but while Monster is becoming expensive to acquire.

•  Poten>al health risks and regulatory probe •  Its revenue is s>ll small compared to the other candidates



Entering Latin America –Aggressive Penetration

La>n America only accounts for about 10% of Coca-‐Cola’s total revenue.

Coca-‐Cola revenues in 2012 by regions

Ø  Coca-‐Cola’s sales in Mexico, Argen>na and Ecuador will poten>ally increase to USD 10 bn by 2015 through the acquisi>on of Arca Con>nental.

Ø  Helps Coca-‐Cola to pursue a global growth strategy by achieving larger market posi>on in Mexico and South America.

Ø  Gives Coca-‐Cola more market power in terms of pricing

Ø  Arca also produces, distributes and sells soC drinks of brands owned by Coca-‐Cola and other brands owned by itself.

Arca Con>nental fits to the porrolio

Arca Con>nental revenues in 2012 by regions



Picking the Winner: Latin American Adventures

Our analysis leads to the conclusion that Arca Con>nental is the best acquisi>on target.

Ø  Very possible to obtain substan>al synergy effects

Ø  Very familiar with Coca-‐Cola’s brands and products since it engages in the produc>on, distribu>on and sale of brands owned by Coca-‐Cola.

Ø  Acquisi>on of Arca Con>nental fits well with Coca-‐Cola’s strategy of growing global presence within soC drinks, especially in La>n America

Ø  There is a comparably high risk associated with direct entrance to the La>n American Consumer Staples market, which can be mi>gated by establishing joint ventures with local manufacturers.

Copyright © 2014 by Standard & Poor’s Financial Services LLC (S&P). All rights reserved. No content (including ratings, valuations, credit-related analyses and data, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P, its affiliates, and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions, regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P’s opinions and analyses do not address the suitability of any security. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non–public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

STANDARD & POOR’S, S&P, CAPITAL IQ and GLOBAL CREDIT PORTAL are registered trademarks of Standard & Poor’s Financial Services LLC.

www.spcapitaliq.com

NJIT Big Data Visualization ContestBeverage Industry includes bottled water, juice, sparkling and...

Documents

Transcript of NJIT Big Data Visualization ContestBeverage Industry includes bottled water, juice, sparkling and...