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Market Analysis Strategic Assessment Financial Assessment Acquisition & Valuation Operational Assessment
Valuation of BeerCo
Synergy Benefits
Operational Gains
Superior Growth
CAGR of 7.63% for Operating margin BeerCos Operating Enterprise Value of Production facility
Craft Beer which is post synergy to rise Margin of 20.72% is BeerCo stands at for beer cans if
highest amongst all to 22.76% which is higher than Craft $2.73 billion based setup now would
segments. Craft higher than both Beer segments on comparable enhance operational
Beers share will rise BevCo & BeerCos average of 20%. recent M&As in the leverage of BeerCo.
to 7.26% in the current operating Higher margins from alcoholic beverage
alcoholic beverage margin. Ales and Stouts industry.
market by 2019. compared to Lager.
Strategic Financial Acquisition & Operational
Market Analysis
Assessment Assessment Valuation Assessment
-1.34%
+2.48%
55% 49%
29% 34% +7.63%
+1.22%
$32.6 bn $23.22 bn
$17.2 bn $33.47bn
20.6%
20.4%
BeerCos Financials 20%
20.2%
BeerCos operating margins (20.72%) are higher then the 20.0%
craft beer industry average of 20%. Also BeerCo has a
healthy EBITDA of $ 260 million and an operating income of 19.8%
$230 million.
19.6%
Industry BeerCo
Profitability Analysis
Year
Strategic Financial Acquisition & Operational
Market Analysis
Assessment Assessment Valuation Assessment
Valuations Method Description Pros Cons
For BeerCo, we will utilize the
Discount future FCF of the firm using the Relies on future profits as an indicator of Does not consider strategic Comparable Transactions
Discounted Cash Flow Analysis WACC of the firm to arrive at the Present firm value which implies a profitable firm importance of a firm and only looks Method based on available
Value of the firm. is likely to be more valuable. at profit.
data.
Therefore revenue multiplier from comparable transactions would undervalue the firm.
Based on our analysis, Craftbevco and Mark North are most comparable to BeerCo.
Strategic Financial Acquisition & Operational
Market Analysis
Assessment Assessment Valuation Assessment
these 2 firms.
= US$2.73 billion 5.
6.
Credit rating of the firm.
On the Rocks 1,000 Margarita 641 103 1.6x 9.8x Comparable Not Comparable
Craftbev Co 990 Craft beer 510 80 1.9x 12.3x Comparable Comparable
Park Ave. 112 Beer 17 4 6.5x 25.9x Not Comparable Comparable
Mark North 1,380 Beer 836 159 1.7x 8.7x Comparable Comparable
Epic MJ 270 Craft beer 156 26 1.7x 10.4x Not Comparable Comparable
Won Winery 130 Wine 96 13 1.4x 10.1x Not Comparable Not Comparable
Jane Co. 280 Spirits 175 34 1.6x 8.1x Not Comparable Not Comparable
Strategic Financial Acquisition & Operational
Market Analysis
Assessment Assessment Valuation Assessment
In house Production process than Cost Effectiveness in craft brewing Hedging risk against delay in value chain activities in
Production and quality control
outsourcing for aluminum cans in the long run brewing.
Can is superior rand sustainable and less expensive to produce Sustainable , Cost Effective and
Adapting Can revolution than glass bottles preserves beer flavor and shelf life Green brewing + US environment
Preserve the taste of beer
conscious consumers prefer green
( BeerCo already partners with a supplier at $ 0.15 per can ) brewing
Long term and direct Critical and time bound Delivery of Raw Suppliers in craft beer (even in overall Weather, alternative fuels and
supplier relationship materials beer segment )assist in brewing government policy affects price of
DIRECT CLOSE relation is a must BeerCos Wide variety of premium craft beer process , technical knowhow and Wheat, corn, soya bean and barley
else BeerCo might fail shortage of flavors with requires Seasonal issues resolution
supplies ingredients - derived demand critical Ethanol prices implies COGS
Strategic Financial Acquisition & Operational
Market Analysis
Assessment Assessment Valuation Assessment
Post Acquisition : In-house Can production vs. External sourcing Operational Integration
BevCo & BeerCo
903
767 783.41
Costs incurred were discounted to 2014
using a discount rate of 4.7% (Capital
Cost of BeerCo. in 2014)
767
2015 Do financial statement and asset
integration but leave management of BeerCo
643 run it as a separate SBU
583 Net present value of Investment in a
Approach with Caution to merge BeerCo to
facility
538 Least in 2014 = **$538 mn
avoid attrition of the talent pool
1. distribution operations,
2. network optimization,
3. materials sourcing,
4. and supply chain management
Analysis of the NPV of investment costs (Avoid sudden disruption in the operations
indicates that BeerCo. Should begin in- of BeerCo Gradual integration of its entire
house can production now. value chain)
( Low NPV means start now Gain in
Long run
**Based on the year in which Can Production Facility is setup, compute the total
discounted costs of setting up the facility and production of the cans, along with
Year in which in-house can production is initiated (every year considered) the outsourcing costs of the cans for the years prior to the setting up of the facility.
Recommendations
Synergy
Resulting synergies
from the acquisition
BeerCo Financials will result in
BeerCos financials significantly higher
Premium Segment are sound and on top revenues and
of that it owns 6 of reduced costs for
Craft Beers are the top 20 craft beer BevCo.
premium segment brands hence an
Diversification beers and command acquisition would
Diversifying its a high margin. This give BevCo a head
revenue streams into would help BevCo start in the Beer
Craft Beer Growth improve its
the Craft Beer Market Market.
The Craft Beer will ensure growth profitability in the
Segment is growing and reduce the risk of long run.
Consumer Taste at a 15 times the avg. stagnating in a
Premium alcoholic CAGR of the beer mature market.
beverages are industry. Right time
growing in popularity to enter the Craft
specially Craft Beer. Beer Market.
Appendix
References
US Brewers Association https://www.brewersassociation.org/statistics/national-beer-sales-production-data/
Technomic's "2014 Special Trends in US Adult Beverage Report: State of the Industry report :
https://www.technomic.com/Reports_and_Newsletters/Industry_Reports/dyn_PubLoad_v2.php?pID=135
Supplier support: Building strong relationships is key to brewery success/ CRAFT BREWING BUSINESS
http://www.craftbrewingbusiness.com/tag/craft-brewers-conference-brewexpo-america-2014/
http://www.forbes.com/sites/larryolmsted/2013/05/01/craft-beers-say-hello-cans-goodbye-bottles-an-aluminum-revolution/
http://www.bizfilings.com/Libraries/pdfs/starting-manufacturing-business-guide.sflb.ashx
http://www.pwc.com/us/en/transaction-services/publications/operations-integration.jhtml
https://www.brewersassociation.org/press-releases/year-beer-2014-craft-beer-review-brewers-association/
Assumptions
NPV method of discounting total costs using CAGR of 2014 ( assuming if facility is to be built in 2014 next least cost to
build a facility is now i.e. 2015
Working Notes
Data Analysis and working notes attached as excel :
Skunkworks_Case
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