Banking and industry sources name Hong Kong-listed Kingway Brewery Holdings, China's Beijing Yanjing Brewery Co, India's Tilaknagar Industries, and KKR & Co-backed South Korean Oriental Brewery among the potential takeover or joint venture targets for global brewers. Like many other sectors, the global drinks industry is stepping up its Asian presence to offset sluggish growth at home.
Everybody wants a slice of Asia, said Deepa D'Souza, a consultant with global market research firm Mintel in Mumbai. The global companies who are present there want to expand further and further in markets like China, she added. The problem is there are not enough suitable assets available and so there is a race to pick up whatever is around and there will be more of the takeover battles we are seeing now.
After a two-month battle last year, Dutch brewer Heineken NV finally got control of Asia Pacific Breweries Ltd in a $6.4-billion deal. That translated into a multiple of 35 times earnings, amongst the richest paid for Asian beer acquisitions and a sign that global companies are willing to bid for Asian growth.
World No. 1 Diageo Plc's plan to buy a majority stake in India's United Spirits may spur more deals in that country's competitive spirits segment in the next couple of years, analysts said. The race for partners in India has already begun.
French rival Pernod Ricard SA, which sells brands such as Seagrams whiskey, signed a bottling agreement with Tilaknagar, a senior Tilaknagar official told Reuters.
We have signed a bottling partnership with Pernod last year and are open to strategic partnerships, said the official, who declined to be named because he was not authorised to discuss internal negotiations. Discussions are on with Pernod. Pernod confirmed that it had a bottling deal with Tilaknagar, but declined to comment on whether it was seeking a strategic partnership.
India's second-largest spirits company, Radico Khaitan, has been talking to international players about a joint venture after its partnership with Diageo ended last year, Managing Director Abhishek Khaitan said.
Deals in China's spirits segment will be largely limited to distribution tie-ups, although bankers say some acquisitions are possible as the industry consolidates.
The top five brewers in China control about 60% of the domestic beer market, compared with South Korea where the top two hold about 90%.
China's beer market grew by 29% in volume terms between 2007 and 2011, and Mintel predicts cumulative growth of 47.5 percent over the next five years.
Buying a piece of that growth won't come cheap. Chinese alcohol companies boast valuations that are three times richer than those in Western countries, with deals closing at multiples of up to 50 times earnings, said Andrew Holland, an analyst with Societe Generale in London.
It is bit of a puzzle because the profitability of the Chinese beer industry is not high. But a lot of Western brewers see the size of the market, see the growth in it and ignore usual financial discipline in order to build their presence there, Holland said.
China's Guangzhou Zhujiang Brewery trades at 92.3 times its 12-month forward earnings while China Resources Enterprise trades at 25.8 times, compared with a global sector average of 18.1.
Kingway Brewery's planned sale of some China business has been delayed after some buyers baulked at the high price. Kingway is still in talks with CR Snow for a deal, sources familiar with the matter told Reuters, after discussions with Beijing Yanjing broke off last year. CR Snow is a joint venture between China Resources and SABMiller PLC, the world's second biggest brewer.