• Breweries could pursue further deals in bottling sector amid supply chain simplification
• Category lines between brewing and soft drinks starting to blur with zero and low-alcohol alternatives
• Britvic takeover boosts EMEA beverages M&A to EUR 5.6bn, already ahead of 2023 full-year tally

Europe’s beverages sector is poised for further M&A across bottling and soft drinks driven by the need for consolidation, diversification, and adaptation to consumer trends, according to sector dealmakers.

Brewer Carlsberg [CARL-B.CO] agreed to acquire soft drinks manufacturer Britvic [LON:BVIC] during June for GBP 4.1bn in a deal which, if completed, would become the sector’s 10th-largest in Europe of all time, according to Dealogic data.

There could be more deals to come as beverages companies seek economies of scale, especially given high costs associated with shipping, as well as to fast-track portfolio growth, said James Cass, partner and managing director for the consumer sector at financial advisory and consulting firm AlixPartners.

Carlsberg’s desire to strengthen its relationship with PepsiCo [NYSE:PEP] was one of the reasons behind its acquisition of Hemel Hempstead, UK-headquartered Britvic, as reported. Synergies across the value chain, from R&D and innovation to logistics, were also a key factor, Carlsberg’s management said upon signing the deal.

Copenhagen-based Carlsberg is expected to become the largest PepsiCo bottling partner in Europe on completion of the transaction.

Dealing with fewer bottlers simplifies operations for companies like PepsiCo and further consolidation is anticipated in this area, two sector advisers said.

Large brewers like Carlsberg are becoming increasingly important bottling partners for both Coca-Cola [NYSE:KO] and Pepsi.

Faxe, Denmark-based Royal Unibrew [CPH:RBREW] owns Hartwall, which holds the licence for the manufacture and sale of PepsiCo drinks in Finland, as well as Vrumona, which provides the same services in the Netherlands.

AB InBev’s [EBR:ABI] SAB Miller is one of the biggest bottlers for Coca-Cola, a third sector advisor said, adding that more breweries are expected to acquire soft drinks bottling companies.

KKR-backed independent beverage solutions provider Refresco, based in Rotterdam, is a bottler for various brands and could be a potential sector target, this advisor added.

Companies and investors have specific and individual criteria when considering M&A, a fourth advisor said. He added the Carlsberg deal with Britvic primarily focused on cost savings.

The European beverages sector has seen steady M&A activity over the past couple of years, according to Dealogic data. Annual deal volume averaged EUR 4.4bn across 2019 to 2023 with an average of 134 deals announced per year. Year-to-date in 2024, EUR 5.6bn worth of deals were announced, including the Britvic takeover, across 67 transactions. Europe’s largest deal historically remains AB Inbev’s 2015 takeover of brewer SAB Miller for GBP 88bn including debt.

Large UK-listed players have all done “a decent amount of M&A” in the last few years with some filling the gaps in their portfolio, a fifth advisor said. For example, Britvic acquired UK-based Jimmy’s Iced Coffee and 12 beverage brands from Brazil-based Globalbev Industria de Bebidas e Alimentos for an undisclosed amount last year.

AG Barr acquired Rio Tropical, a local manufacturer of tropical fruit drinks, for GBP 12m in 2023.

One of other notable deals in the European beverages sector this year was the purchase of a stake by Cinven for an undisclosed sum in Bridgepoint-backed Vitamin Well, the same advisor said. Vitamin Well has tripled its EBITDA in the last three years to hit EUR 150m in 2023, as previously reported by Mergermarket.

Sponsors are willing to pay high multiples for fast-growing, early-stage brands while others are at a more mature stage in their development and are more suited for strategic investors, the fourth advisor said.

“We expect global trade to be more selective when assessing M&A targets and active portfolio management will remain a key topic as they navigate the current operating environment,” Cass at AlixPartners said.

International beverages groups might also seek to acquire UK peers to expand their portfolios, one of the advisors said. The UK is a sizeable market with well-known brands and valuations are seen as relatively attractive, Cass added.

Other potential sector deals include Capri-Sun, a Zug, Switzerland-based juice drink company, which has tapped advisors to assess interest in a sale of a minority stake, according to a media report last month. Poland-based isotonic drinks maker Oshee has hired Fidea and Houlihan Lokey for a stake sale.

Changing consumer trends

The beverage market has undergone significant changes in recent years driven by shifting consumer preferences. Consumers today are much more health-conscious and aware of their impact on the environment, Robert Baxter, UK Head of Corporate Finance and Global Head of Consumer M&A at KPMG said.

Themes like these have spurred a wave of experimentation and innovation. There has been a surge in innovation and new brand entries in the last few years, which also has the potential to drive further sector M&A, a fifth advisor said.

Soft drinks companies founded in recent years have already grown substantially, the same advisor added. For instance, UK-based Trip Drinks, launched in 2019, is now nearing GBP 30m in sales and might attract interest from larger strategic players such as Britvic and AG Barr, the advisor said.

Niche categories like value-added hydration and functional beverages – those which include ingredients providing physiological or health benefits – have enjoyed particularly rapid growth, Baxter said.

Meanwhile, the craft beer sector, which once led the way for M&A activity in the beverages sector, has seen momentum subside, said Baxter. Category growth has slowed and portfolio gaps among global trade players have largely been filled.

Within spirits, there has been a normalisation in sales after years of above average growth, Baxter added.

Category lines between alcohol and non-alcoholic drinks have also started to blur, Cass at AlixPartners added. For example, low-and-no alcohol beers, spirits and wines are now increasingly popular. These categories are growing quickly albeit from a low base and attracting interest from alcohol companies seeking to build their non-alcohol exposure, he said.

Targets and buyers 

AG Barr, Fevertree [LON:FEVR], Nichols [LON:NICL] and C&C [LON:CCR] are among the listed industry players which have previously been flagged as potential takeover targets by Mergermarket analysts.

Fevertree is the most expensive among them on valuation metrics but the company benefits from a more international brand, one of advisors said. Peers like AG Barr and Nichols, which trade at lower EV/EBITDA valuations, are more focused on the UK.

There is a general undervaluation across UK companies on the stock exchange compared to valuations in the US and this has increased the possibility of activist shareholder involvement in the sector, a sixth advisor said.

C&C Group [LON:CCR], the Ireland-based producer of Magners cider and Tennent’s beer, is being pressed by activist shareholder Engine Capital to launch a strategic review and consider a sale of the business, according to a newswire report in June.

UK companies are suffering as they are situated in a relatively undervalued market making them attractive targets for foreign investors from a valuation perspective, the same advisor said.

When it comes to potential buyers, it depends on what strategic buyers are looking for, Cass said. They might be seeking to enter a new market or add to their existing portfolio, he added.

Large beverage companies are reshuffling their portfolios and looking to exit smaller, non-core, and lower-growth businesses, providing opportunities for new owners to focus on optimising once non-core brands, Cass said.  

Many large beverage companies have strong balance sheets that can be used for M&A activities, he said.

Private equity firms are also active in the sector because of the sector’s resilient financial profile and strong cash generation. That means operational improvement opportunities, break-ups and bolt-on acquisitions in the sector are usually tracked closely by financial sponsors, Cass noted.

AG Barr declined to comment. PepsiCo, Nichols, FeverTree, Trip Drinks, and Refresco did not respond to requests for comment.