INSIGHTS Express
Vol 18, No 92
May 18, 2016
“More Activity” in AB Distrib Deals Than in “Recent Memory” Sez Ex-Exec Mark Hall; High Multiples
Tho basically a normal number of AB distrib deals in 2014-2015 (anywhere from 10 to 15 100% purchases), early this yr there’s a “significant increase” in number of deals on ABI side that have “either occurred or are in process,” Paragon Bev Advisors managing director Mark Hall said at our Spring Conference. Mark in position to know as he and partner Randy Jozwiakowski led AB’s wholesaler M&A team for a number of yrs before hanging their own shingle last yr. He pointed to AB’s anchor wholesaler and voluntary alignment incentive programs as having “potential to encourage consolidation.” Whether “energy and focus” behind those programs triggering increase in deals or not, “there is certainly more activity than we’ve ever seen in recent memory,” on deals in AB system, said Mark.
10x EBITDA Is “The New Norm” After yrs of multiple expansion from old standard of paying about 6x EBITDA (earnings before interest, taxes, depreciation and amortization), paying 10x EBITDA is “the new norm,” according to managing director Mark Hall. “Today,” added Mark, sometimes multiples “even north of 10x.” Main reasons for multiple expansion: “prolonged period of low
interest rates,” “return on wholesaler deals much better than alternative investments” and “long period of steady EBITDA growth” for distribs.
AB Distribs “Jumping” States to Do Deals One of most interesting new “more frequent” patterns that emerged in last couple of yrs, according to Randy: acquiring AB distribs “jump” states to buy distribs, instead of contiguous distribs, “leading to more bidders.” Why is this happening? “Suppliers encouraging/aiding their preferred buyers to get bigger,” said Randy, i.e. the anchor wholesaler program.
Randy gave many other reasons, including “would be buyers unable to grow contiguously,” “more professional sophisticated wholesalers” an alternative for selling wholesaler to get “the desired or fair market value.” Randy also gave many examples of such “jumping” in AB system from just last couple of yrs: two MO wholesalers moving outside state; Steven Busch acquiring in CO, Jeff Gower acquiring in KS; Fabiano family from MI acquiring in WI; TN’s JR Hand acquiring in IL; FL’s John Saputo acquiring in OH; FL’s Tim Mitchell acquiring in AR; MS Mitchell family acquiring in MD; AL’s Adams family acquiring in NC. Newer in AB system, but gotta note too, 3 biggest MC megadistribs, Reyes Bev, HOBO, and Columbia all did same thing in last yr or so.
“Death, Divorce, Dysfunction” as Deal Triggers “Most transactions occur because of one of the 3 Ds,” said Randy: 1) “Death in the Family (or planning for that death)”; 2) “Divorce (financial settlement of assets)”; 3) “Dysfunction in the Family (lack of succession or family conflict).” More from this illuminating speech in Beer Marketer’s INSIGHTS.