Major consolidation in the beer industry continued this week, as Inbev agreed to acquire SAB Miller for over $100 billion. The deal continues a long track record of acquisition by Inbev. Several years ago, they took over Anheuser Busch, for instance. Here are a few thoughts about this deal, with lessons that apply to many mergers and acquisitions:
1. Divestitures of certain brands are highly likely due to antitrust concerns. Therefore, other major brewers could be able to acquire some important brands during this process.
Broader lesson: Will rivals be strengthened at all as a result of an acquisition that we do?
2. Economies of scale and scope are a major driver of beer industry consolidation. However, one has to ask: How big is big enough? At what point do diseconomies kick in? Moreover, some research suggests that economies of scale in the beer business are largely about achieving scale within a particular country as opposed to achieving global scale.
Broader lesson: How confident are we that diseconomies of scale will not hamper us?
3. Acquisition integration will be challenging, as with many complex cross-border deals. The firms will have to account for "anti-synergies" i.e. the costs associated with trying to put the two firms together and achieve synergies. Put another way, many deals include detailed valuations of potential synergies without examining the true cost of putting in place processes and systems to achieve those economies of scope.
Broader lesson: Value synergies and anti-synergies in every deal you make.
4. Cost synergies are easier to achieve than revenue synergies. They are much more concrete and predictable. Inbev has a great history of achieving cost synergies. To really make this deal worthwhile, they will have to drive revenue synergies as well.
Broader lesson: Is your deal based on the somewhat hard-to-quantify hope and promise of revenue synergies or the more concrete and predictable cost synergies of bringing two firms together?