Anheuser Busch Inbev SA (NYSE:BUD), one of the world’s largest producers of beer and alcoholic beverages, is set to buy Oriental Brewery for nearly 6 billion dollars. With Oriental Brewery being the largest beer producer in South Korea, this will allow InBev to expand its footprint in Asia, which is now one of the hottest markets for alcohol sales in the world.
AB InBev currently generates nearly 50% of its sales from North America, but has been looking to expand market share in Asia. The company is now planning to expand sales in China, and has been buying up local brands from across the region. The purchase of Oriental Brewery will make AB InBev the largest brewery in South Korea.
Sale is actually a buy back for AB InBev
The sale of Oriental Brewery will represent the largest private equity exit in Asia in history. Anheuser Busch Inbev SA (NYSE:BUD) actually sold off Oriental Brewery to private equity firm KKR & Co. L.P. (NYSE:KKR) and Affinity Equity Partners back in 2009. AB InBev made the deal in order to pay down debts that incurred from a $52 billion dollar buyout of Anheuser-Bush.
The deal with the private equity firms was set up, however, to allow InBev to repurchase the company for 11 times the multiple of Oriental Brewery’s EBITDA, which came in at roughly $500 million dollars this year. The deal must be completed by July of this year, or InBev will lose the automatic rights to the sale. Considering InBev sold the brewery for only $1.8 billion dollars, the returns will be enormous.
Alcoholic market consolidating around the globe
People like booze. As millions of people around the world are finding themselves with increasing amounts of discretionary income, many are choosing to spend it on beer, liquor, and wine. And for already developed countries, people keep chugging away even if economic growth is slowing, or other costs are rising rapidly.
This has made the alcoholic beverage market the perfect market for expansion and consolidation. Alcohol brands tend to hold a lot of power and command high levels of loyalty, so it can be hard to establish a foothold in an already established market, especially without a strong brand. For this reason, many large breweries have been buying up popular local brands in recent years.
Anheuser Busch Inbev SA (NYSE:BUD) is now the world’s largest brewery, accounting for some 25% of all sales. The company employs over 100,000 people and has production facilities in 30 different countries. AB Inbev now has revenues of nearly $40 billion dollars per year.