Professional Documents
Culture Documents
Strauss-SodaStream Dec 2011
Strauss-SodaStream Dec 2011
&
Acquisitions
Group
Project:
Deal
Proposal
Acquisition
reasoning
Strauss
is
looking
to
increase
their
revenue
from
abroad.
They
need
50%
of
its
revenues
to
come
from
overseas
operations.
Since
they
operate
in
about
20
countries
and
SodaStream
operates
in
42
countries,
the
acquisition
of
SodaStream
will
be
a
great
way
to
add
even
more
international
recognition
to
their
brand.
In
an
article
published
in
1997,
Strauss-Elite
mentioned
that
it
wiould
invest
$10
million
in
the
next
three
years
to
promote
the
future
brand
name,
Chief
Executive
Officer Erez Vigodman said in a press conference at the company's headquarters in Ramat Gan. "More food companies around the world understand the importance of having a company with a home brand that incorporates other products as well," Vidogman told reporters. "From today, we are one international company with a clear and focused identity and with one name." With the name of the new acquiring company, Strauss SodaStream, we can use good alliteration for a catchy name while Strauss gets its name out there without losing the dedicated SodaStream brand name that consumers cherish. Even though these comments are over 10 years old, their goals of increasing international recognition have not changed. Once Strauss has established connections with other countries through SodaStream, they will be able to use their manufacturers and customer base to generate a demand for Strauss products. We believe that SodaStream will also want some of the share into the Strauss market. Strauss has big ties in the coffee industry which is a part of the beverage industry. In fact, tests have shown that many people are addicted to caffeine, which means that where there are coffee drinkers, there are also soda drinkers. So introducing this home-based carbonation system to millions of coffee consumers under the Strauss control would highly increase sales for SodaStream. This type of merger would be very beneficial by expanding Strauss horizontal integration. We think that many synergies will occur. On the financial side, we see that the Selling G/A Expenses, which are due to advertising and sales, wipe away 87% of SodaStreams gross profit. This metric for Strauss accounts for 77%, a whole 10% lower than that of SodaStream. We believe that Strauss is able to get their product to a wider audience while incurring a much smaller cost. When the two firms combine, the cost of these marketing, advertising and selling strategies will go down as job functions will merge and they will be utilizing a system that is already in place. This will directly affect the bottom line for SodaStream and therefore Net Income will surely increase.
Evaluation
of
Synergies
Because
part
of
Strauss
and
SodaStream
operate
in
the
same
beverage
industry,
they
will
definitely
recognize
some
revenue
enhancement
synergies.
SodaStream
can
offer
their
customers
coffee
products
and
Strauss
will
offer
their
customers
Home-carbonated
beverage
systems.
They
will
be
able
to
increase
and
combine
marketing
tactics
to
attract
the
same
existing
customers
to
different
products.
With
a
new
marketing
campaign
that
combines
both
companies
images,
they
will
effectively
reach
a
greater
number
of
potential
customers
than
they
are
now.
.
This
will
allow better distribution channels, increasing sales and decrease cost of goods sold through cost reduction synergies. Another synergy, would be Strauss ability to buy more raw materials from their current suppliers, but at much better negotiated prices. Strauss purchases raw materials such as plastic for all the packaging of their food products and SodaStream manufactures reusable plastic bottles. They would be able to also combine manufacturing plants and produce more than one thing at one location. Additionally, since no company needs two CEOs, CFOs, etc. they will save on combining functions and eliminating unnecessary overhead. Since they will be combining companies, they will be able to realize asset reduction synergies by getting rid of redundant headquarters and excess inventories, receivables and cash balances. The managerial skills of Strauss leadership have a long-standing track record and will definitely result in synergies there as well. There will also be real option synergies realized when Strauss gains access to SodaStreams 65 patents and 198 worldwide trademark registrations.
powerful manufacturing and distribution experience. Nevertheless, creating a JV would most likely not be a feasible alternative, as there isnt really a need for SodaStream to spend more of its resources in setting up a separate company with Strauss, nor for Strauss to create a whole new business unit simply to help sell SodaStream through its network. A JV wouldnt help either party in creating any added value for their companies, but most likely would just be an unnecessary venture. Alternatively, through the creation of a licensing agreement, the Strauss group would have the ability to resell the SodaStream products as part of Strauss product line, possibly even re-brand them. Through such an agreement, SodaStream would simply have a new partner to sell to, but would not benefit from Strauss additional resources such as manufacturing, market penetration, or brand recognition. Strauss would probably benefit from additional income form the sales of a new product, but again, as in a strategic alliance, would be deprived from enjoying the high profit margins that SodaStream earns. Finally, another alternative to acquisition would be to for the Strauss group to have a Minority Investment in SodaStream. This would be the only possible alternative to an acquisition that we believe would benefit both companies. Through such an investment, the Strauss Group could partially own SodaStream and therefore receive the net income thats proportionally related to its share of the company. In a way, a minor investment is a partial acquisition, which is what we really recommend the Strauss group to do. Why is it logical to acquire rather than partner? As weve discussed, the Strauss Group is mainly interested in expanding its market reach in the food and beverage industry around the world, and it must do so by being a product leader of innovation and quality. It is more logical that the Strauss group acquire SodaStream, rather than choose any other alternative method for the following reasons: First, The Strauss Groups is much larger in size, and has a developed network of manufacturing plants and distributors of its products around the world, including the USA, in which SodaStream plans to expand aggressively next year (See SodaStream Company presentation Exhibits). Second, SodaStream is still a company thats growing, and it is more beneficial that it grows under the wings of the Strauss group, which already has the experience in expanding product lines around the world. Third, only through acquisition would both Strauss and SodaStream enjoy the full benefits of each others resources. Strauss wants to expand into this new earth friendly beverages industry, while SodaStream is interested in quickly being able to sell its products all around the world.
indeed playing in the beverages market. In fact SodaStreams main competitors are basically Coca Cola and Pepsi, who manufacture most of the worlds soda beverages. By owning SodaStreams distribution market into the beverages and home appliances market (Consumables and Soda Makers respectively), Strauss will now have its hands in a new business arena, with the potential to introduce many other complementary products in the future (including its Tami4 machines, which are mainly popular in Israel, but could certainly be sold around the world just like SodaStream machines). SodaStream (Seller) Interests and Motivations: 1. Expand its Market: Sell its products throughout the world. Accessibility of consumables reaching mass market & multichannel coverage, such as that which the Strauss group can provide. SodaStreams CEO recently said Today we sell to the U.S. only through the Internet, and grow by 50% every year, but our goals require entry to retail chains in the U.S., and we are conducting negotiations with them. Certainly, they can benefit from the market channels, which the Strauss Group already has. 2. Increased funding: SodaStream may be able to obtain the necessary funding it currently lacks to aggressively attack new geographic areas not already covered by either of the two companies. SodaStream has been expanding at a great rate in the past few years, and would like to continue to do so. Although they are already profitable and have cash to reinvest into their company, having Strauss as a parent company who can back them up and help them expand will simply allow SodaStream business to grow much quicker. 3. Product Development growth: Through the use of Strauss experience and resources, SodaStream can continue to innovate new products & soda flavors. In fact, they could build a Tami4 Water machine, which could integrate the SodaStream Soda Maker into it, this way people can buy one machine and either get plain water (hot or cold) or make their own soda on the fly. 4. Cultivate users for life Strauss has been successful in not only gaining new customers, but also in retaining them for long periods of time or for life. SodaStream is interested in also creating such a culture in which customers become lifetime buyers of their products .To do this, SodaStream must literally cultivate a continuous ideology of the importance of being green/earth friendly, of
using less plastic bottles, saving money, and being able to enjoy all of the benefits of the SodaStream products forever, and not just as a trendy product. SodaStream has already done a great marketing job in order to put its products out there in the world (Visit www.facebook.com/SodaStream), through many original marketing campaigns. Yet again, theres nothing better than having access to the resources of a food leader and giant such as the Strauss group, which would give SodaStream even more room for doing even more creative campaigns.
and impact of such factor depend on board members political stances and personal takes on such issues, it will nevertheless become a foci of debate during early negotiation. 3. Strauss as a Monopoly and Acquisition Challenge Lastly, potential obstacle from regulators in Israel will add more uncertainty to the consolidation of the two companies. Strauss was labeled by the Israel AntiTrust Authority as a monopoly in 2004, a status that essentially places the company under government regulation limiting the way it can change the price of its products to protect the consumer and smaller competitors. The deal will have to go through careful scrutiny of the regulators before it is allowed to happen. Meanwhile, facing such possibility of regulatory scrutiny the board of SodaStream might be concerned about exposing to unnecessary governmental attention and decide to back up from the proposal. To sum up, all three topics above will be mentioned during early contact and negotiation inevitably, and both sides will evaluate each others stance before making further contact and feasibility assessment. Without thoroughly discussion of such issues, the consolidation will not be easily achieved.
Valuation
M&A
normally
involves
using
more
than
one
valuation
technique
to
arrive
at
a
final
enterprise
valuation.
The
choice
of
the
valuation
structure
to
a
large
extend
depend
on
the
acquisition
targets
size,
both
parties
power
balance
and
macro-economic
situations.
In
the
case
of
SodaStream
and
Strass,
we
believe
a
high
price
premium
will
be
demanded
and
the
company
will
be
evaluated
at
around
641,887,000.
Logic
for
such
evaluation
is
illustrated
below.
1. SodaStreams
Demand
for
High
Price
Premium
To
begin
with,
the
board
of
Strauss
should
expect
to
pay
a
higher
price
premium
for
Sodastream.
Compare
to
other
market
peers,
SodaStream
has
demonstrated
strong
financial
and
strategic
growth
perspective
recently.
As
mentioned
above,
such
strong
growth
and
bright
perspective
are
mainly
due
to
the
rapid
expansion
of
its
distribution
network
into
Costco,
Target,
and
Best
Buy
.
Durin
the
period,
the
stock
price
of
SodaStress
gained
more
than
4%.
To
convince
the
board
members
of
SodaStream
to
trade
their
ownership
of
a
company
with
so
much
possibility
and
growth
space,
Strauss
would
present
very
attractive
premium
during
negotiation
to
persuade
SodaStream
to
give
up
its
ownership.
2. Current
Valuation
Ratios
and
Comparison
Following
the
price
premium,
the
financial
team
of
the
deal
analysis
should
then
prepare
various
rations
for
the
enterprise
evaluation
and
price
estimations
based
on
various
resources.
For
example,
according
to
infinancialsanalytics.com,
the
EV
of
SodaStream
in
2011
is
641,887,000
USD.
A
brief
summary
of
various
ratios
for
SodaStream
evaluation
is
listed
below.
Meanwhile,
as
displayed,
Sodastreams
P/E,
P/B
and
P/S
are
all
comparatively
higher
than
the
industry
average,
indicating
a
more
expensive
valuation.
For
example,
Sodastream
International
Ltd
shows
a
EV/EBITDA
ratio
of
12.38
for
the
next
12
months.
This
is
significantly
higher
than
the
median
of
its
peer
group.
SODA
Price/Earnings
Price/Book
Price/Sales
Price/Cash
Flow
Dividend
Yield
%
SODA
21.9
2.8
2.2
-90.1
Enterprise
Value(in
thousands
USD)
Sodastream
International
SANDEN
CORPORATION Rinnai
Corp.
Industry
Avg
S&P
500
17.7
2.1
0.7
8.6
1.8
EV/EBITDA 2012
Relevance
Score
641 887
12.21
Indesit Company
954 283
SodaStream is a smaller firm comparing to Strauss, and current stock market doesnt pose as a positive recommendation for stock payment. Meanwhile, SodaStreams strong performance recently would give the board of the SodaStream leverage to insist on favorable cash payment. 2. Earn-Out Possibility As mentioned earlier, Strauss is expect to pay large premium while using cash payment. High risk can potentially be a major concern for Strauss and become obstacle in finalizing the deal. To solve such concern, earn-out provisions can be an effective strategy for closing an acquisition when the financial performance or value of the target company is uncertain. In an earn-out agreement, the buyer gives the seller additional compensation if the acquired business achieves certain criteria. It can be particularly useful when the target company is a startup or involved in new technologies or new markets. Strauss can utilize earn-out in the transaction to secure more value from SodaStream board members while mitigate uncertainty and close the deal in the most efficient manner
functions in order to avoid duplications and unnecessary costs (including real-estate, logistic, HR), Distribution channels will be integrated in order to avoid duplications and cut on costs, change of relationships with employees, suppliers, consumers and distributers will take place. Globally, as each of the companies has its strengths and advantages in different locations- as SodaStream operates in developed countries (the US, Canada, Australia, U.K., Germany, Italy, Sweden ect.), Strauss Group operates with its coffee activity mostly (but not solely) in developing countries (such as Poland, Bulgaria, Romania, Ukraine, Russia and Brazil) and Strauss water just started its global activity (in China and the UK)- each activity has a new platform for penetration- the soda and water activity in eastern Europe and other developing countries and Strauss's activity in countries it has not yet penetrated with one of its products (coffee, chocolates, cold salads, ect.), especially with its AFH and water segments, if it stands with its penetration principles. Operational, Control and Procedure changes will take place: policy of the new company, reporting lines, decision-making, hierarchy, control systems usage (via rulebooks) and the way that work flows through the business will be implemented according to Strauss groups' existing conducting and leadership team's recommendations and decisions. R&D synergy will take place as the soda and the purifying water are complementary products- we suggested to think of the creation of a product which combines the 2 features in 1 product (Tami4 water machines and SodaStreams Home carbonation systems). Marketing and promotion synergy will take place via Marketing & sales promotions and Combined services. Marketing & sales promotion: since penetration to new markets and maintaining market share revolves around the same campaigns and media, Strauss's enormous PR budgets may enable creating wider awareness to SodaStream's brand and products. Combined services: the soda products will be placed in the selling points by the Tami 4 products and vice versa. This should be started in Israel and should be expanding globally afterwards. New Culture Implementation will take place: learning Strauss groups' culture includes the following elements: o The Paradigm: what the group is about, what it does, its mission, values and assumptions o Power Structures: who makes the decisions, how widely spread is power, and on what is the power based on. o Symbols: organizational logos and designs which create meaning of how employees perceive the organization, but also extend to symbols of power such as parking spaces.
o Norms, Rituals and Routines: management meetings, board reports, habits and so on but also rewarding system, parties and events in which employees gather on a friendly basis. o Stories and Myths: build up about people and events, and convey a message about what is valued within the organization. As seen, organizational culture combines aspects regarding all of the above as well. Understanding and implementing the organizational culture in the visible and invisible layers is without a doubt crucial for the success of the merger.
loss in autonomy. That might come to fruition with decrease in job satisfaction, and in some cases, lack of motivation to perform the job. Cultural change: as mentioned above, cultural implantation is one of the most challenging parts in M&A. If there is a huge gap between the former and new culture, mediation it is much harder. Employees of SodaStream might not identify with the new organizational culture, vision and goals. For instance, SodaStream's employees might not get adjusted to the new and more risk taking culture of Strauss Group. That might raise feelings of frustration and discontent, resulting in lack of commitment and loss of productivity. SodaStream's Employees not adjusting to the merge: besides cultural change, other changes such as: new operational systems, new policies, new decision making hierarchy, change in working process and integration of distribution channels might have effects as employees will find it hard to change their existing manners which they hold for a while. Future implication of increased manufacturing capacity to support growth: In order to create value to shareholders, the merge should obtain benefits the companies couldnt achieve without it, such as increase of sales. To enable this, manufacturing capacity has to increase. This refers to creating new factories/assembly lines and the transfer of employees to new factory locations and/or hiring a new working force. Both changes mentioned may create difficulties for employees and as a result might increase the risk of the merges success.
4. Part of Strauss vision is to adjust to environmental changes and consumers preferences, and by entering the Green/ Earth Friendly market; Strauss will follow this new consumption trend, and thus attract new customers. Specially those who prefer not buying Strauss snacks and chocolate products 5. By acquiring SodaStream, Strauss will expand to markets it does not operate in (Such as Western Europe) as it operates mostly in Eastern Europe (Romania, Bulgaria, Ukraine, Russia, Poland) 6. The acquisition will also help Strauss continue its international expansion outside of Israel. 7. As for SodaStreams business, it would immensely enjoy Strauss's economy of Scale, which will help it reach new customers around the world. 8. Strauss's promotion and marketing will enlarge SodaStreams exposure to target consumers. For example, it could begin by targeting all the Tami4 and Salads customers, who already have a Green mindset. 9. Through Strauss' deep resources, SodaStream' could have the funds its may need to build new factory in the US or additional assembly lines as a result of its rapid growth it expects to gain in the US and other markets SodaStream would attack and expand into through Strauss. Important Notes: Our estimates are based on the cultures, structures, goals and strategies of both companies, after carefully analyzing how both companies would mutually benefit and complement each other. Yet, its always important to remember that things in real-life could turn out different, either for the better or for the worst. Therefore, no estimate could truly estimate the success of a deal until its actually completed in the market.
Resources
CNN
Money:
http://money.cnn.com/2011/11/09/markets/tweets_stocktwits/index.htm
Emails
back
and
forth
with
Yonah
Lloyd
-
Executive
Director
of
Corporate
Development
and
Communication
at
SodaStream
Fool.com:
http://www.fool.com/investing/high-growth/2011/06/03/how-sodastream-goes-to- 160.aspx
Google
Finance:
http://www.google.com/finance?q=NASDAQ%3ASODA&fstype=ii&hl=en
Morning
Star
newspaper:
http://financials.morningstar.com/valuation/price- ratio.html?t=SODA®ion=USA&culture=en-us
Nasdaq:
http://www.nasdaq.com/symbol/soda/ownership-summary
Soda
Stream:
http://www.sodastream.com
&
http://sodastream.investorroom.com
Strauss
Group:
http://www.strauss-group.com/AboutUs-Overview
Wikipedia,
SodaStream:
http://en.wikipedia.org/wiki/Sodastream
Yahoo
Finance:
http://finance.yahoo.com/q/is?s=SODA+Income+Statement&annual
SodaStream
Complete
Carbonation
Systems:
Top 10 Holders