In the pre-crash days, the hot favourite to buy Ribena and Lucozade would have been a private equity group, or groups. The two drinks seem to have many financial characteristics that typically attract the leveraged buyout brigade – strong brands, stable turnover, high profit margins and well-invested assets. Gear up that little lot with a pile of cheap debt, squeeze the cash flows harder than the blackcurrants, and the financial gymnastics might prove very worthwhile.
But it hasn't turned out that way. The winner of the auction conducted by GlaxoSmithKline is a trade buyer – Suntory, the Japanese whisky and soft drinks group. Private equity firms were in the race but were outbid. A sign of private equity's reduced firepower? Maybe, but the other factor was probably Suntory's desperation to expand outside Japan and to add its Orangina Schweppes purchase a few years ago.
The result for GSK is a price that looks pretty on all main measures. Suntory is paying 2.6 times turnover and about 14 times profits, assuming Ribena's and Lucozade's margins are roughly in line with the average for GSK's consumer brands.
The Japanese also bring less risk for GSK in the sense that they are more likely to invest in the business over the long-term rather than play financial games. Suntory, for example, was happy to sign a three-year protection agreement on the Coleford manufacturing plant in the Forest of Dean.
We'll wait to see what happens after the three years are up, but this looks to be a decent outcome all round.
