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Deloitte Case
Deloitte Case
Business situation
Our client, BevCo, is a leading international producer and marketer of wine and spirits with operations in
the United States, Canada, Mexico, New Zealand, and Italy. Founded in 1960, BevCo has grown to become
a significant player in the alcoholic beverage industry with more than 100 brands in its portfolio, sales in
approximately 100 countries, about 40 facilities and approximately 6,300 employees. Recently, however, BevCo
has been facing declining revenue and profitability due to shifts in consumer tastes to other categories,
such as beer.
To bolster growth, the client is exploring several options to enter the beer market to diversify revenue streams
and broaden its portfolio of brands. The beer industry is highly consolidated, with a few major players
controlling more than 70 percent of total volume and hundreds of smaller players selling to the rest
of the market.
Large domestic brands, while still constituting the majority of US beer sales, are declining as consumer tastes
shift to craft brews, and imports. BeerCo, a US-based brewer with sales and distribution solely in the United
States, has been identified as a potential acquisition target. The BeerCo portfolio includes six of the top 20 craft
beer brands in the United States and a coveted portfolio of premium brands in the growing US craft
beer category.
BevCo has limited experience in the beer industry and has asked Deloitte to help it determine if it should acquire
BeerCo and identify integration considerations that need to be addressed.
You are a member of the Deloitte team engaged to help BevCo understand the market situation and conduct
target analysis, including strategic assessment, financial assessment, and operational assessment. Additionally,
the client would like assistance in estimating the acquisition price for BeerCo.
A
B
C
D
E
1. Estimate the growth rate of the US beer market from 2014-2019. Based on this, how attractive does this market appear?
2. Estimate the growth rate of craft beer in the same period. (You can use average annual growth rate instead of CAGR.)
3. Using available data, compare the attractiveness of the craft beer segment to other alcoholic beverage segments.
What do you conclude from this?
1. What factors should BevCo consider when evaluating the opportunity to purchase BeerCo and enter the craft beer market?
2. Describe in a qualitative manner the potential revenue and cost synergies from an acquisition of BeerCo.
3. Considering the potential synergies above, estimate the new operating margin for 2014 that could be achieved through the
acquisition (using BevCos analysis).
1. Calculate BeerCos operating margin. How does this compare to the industry average?
The range of wine, beer, and distilled spirits offered by brand and by type is wide. Demand is relatively
inelastic during both good and bad economic times.
There is an overall long-term trend of rising affluence around the globe. Thus, more and more consumers are
becoming increasingly discerning about what they purchase.
Premium alcoholic beverages are growing in popularity, particularly flavored ones.
As is the case with premium wine and spirits, craft beers1 are very popular with consumers. These beers are
priced higher and are quite profitable, as long as the cost of their rich ingredients is covered.
Small brewers pay close attention to quality and have expanded slowly, but are capturing market share. Large
brewers, mindful not to lose sales, have developed their own premium brands, while some have acquired
smaller rivals.
Producers of alcoholic beverages invest large amounts of cash in marketing and advertising to build brand
recognition. Debt burdens have been growing in recent years as companies aggressively expand through
acquisitions.
A steady wave of consolidation has led to the alcoholic beverage market being much more fragmented than
it was in the last decade.
2. BeerCo has three primary product lines (Lager,Ale, and Stout). Of the three product lines, which one represents opportunities for
profitability improvement?
3. Based on the above profitability analysis, what levers would you consider to improve the profitability of the identified
product line?
1. There are several methods to determine valuation. What are the pros and cons for each? What is the most suitable approach for
assessing BeerCos value?
2. What purchase price would you estimate based on current financial projections? (Use the M&A information provided by the
clients bankers, and the P&L given. Disregard synergies.)
3. Beyond synergies, what considerations could impact the purchase price?
1. What operational considerations should BevCo keep in mind when setting up this new business unit?
2. As a part of optimizing operations, BevCo would like to better understand BeerCos supply base. In particular, should BevCo
continue to purchase cans from the existing supplier or open
a new production facility?
3. At what point, if any, would building a new facility be more economical?
1 What is craft beer? A beer with a distinctive flavor, produced in small quantities and distributed in a particular region
Campus Maverick Round 1
63.0
60.2
65.0
66.5
Characteristics of Segments
59.2
+2.9%
59.2
9.5
17.2
Competition
32.6
2014
2015
2016
2017
2018
2019
2014
2019(E)
2014
2019 (E)
0.64
0.68
12
1.2
1.3
Import
29
31
0.7
0.74
Premium
58
53
0.44
0.45
0.38
107
In Billions of USD
Average Price Per
Bottle ($)
10
Sub
Premium
Wine
95
Spirits
Beer
0.37
BevCo
BeerCo
Revenue
3.35B
1.11B
COGS
2.18B
669M
SG&A
652.6M
201M
EBITDA
Operating Income
Operating Margin %
530M
260M
517.4M
15.4%
Wine
Medium
High
High
Medium
Spirits
Medium
Medium
Medium
Beer
(Overall)
High
Medium
Low
>>Super
Premium
Medium
Medium
Medium
>>Craft
Low
Medium
High
>>Import
10
Craft
Total
Investment
Market
Needed Margin Growth
Medium
Medium
Medium
>>Premium
High
Medium
Low
>>Sub
Premium
High
Medium
Low
Acq. Price
On the Rocks
1,000
Margarita
641
103
1.6x
9.8x
Craftbev Co
990
Craft beer
510
80
1.9x
12.3x
Park Ave.
112
Beer
17
6.5x
25.9x
Mark North
1,380
Beer
836
159
1.7x
8.7x
Epic MJ
270
Craft beer
156
26
1.7x
10.4x
Won Winery
130
Wine
96
13
1.4x
10.1x
Jane Co.
280
Spirits
175
34
1.6x
8.1x
Target
Target Rev.
($M)
Target
EBITDA ($M)
Transac. Rev
Multiple
Transac.
EBITDA
Multiple
Target's
Segment
Revenue
2013
COGS
2014
2013
SG&A
2014
2013
Cost of Capital
2014
2013
2014
Financial
Information
2013
2014
Ale
2015
2013
2014
Stout
2015
2013
2014
2015
625
719
400
460
125
150
3.60%
4.50%
Revenue
625
719
863
208
228
150
158
173
208
228
113
124
30
30
4.00%
4.80%
COGS
400
460
552
113
124
81
85
94
SG&A
125
150
195
30
30
33
23
21
23
Operating Income
100
109
116
65
75
46
51
57
16%
15%
13%
31%
33%
31%
32%
33%
150
158
81
85
23
21
4.00%
4.90%
Overall
983
1105
594
669
178
201
3.90%
4.70%
Operating Margin %
Product Line Information
Aluminum
Cans
Medium
Ale
Glass
Bottles
90 days
High
Stout
Glass
Bottles
90 days
3 varieties
5 varieties
Lager
High
20%
15%
15%
10%
10%
22%
10%
8%
5%
23%
7%
5%
Unit InformationAle
25%
Lager
5%
Ale
Stout
2013
2014
2015
2016
2017
2014
Number of units
1000
Price/unit
$0.91
COGS/unit
$0.50
SGA/unit
$0.12
Build Own
Facility
Continue to Buy
from Supplier
Number of cans
in 2014 was 500
million, increasing
by 200 million
annually.
BeerCo pays
$0.15 per can
to its existing
supplier.
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