By Dow Jones Business News,
January 20, 2014, 01:25:00 AM EDT
Private-equity firms KKR & Co. and Affinity Equity Partners have agreed to sell South Korea'sOriental Brewery back to
beer giant Anheuser-Busch InBev NV for $5.8 billion, in the largest private-equity exit in Asia on record.
KKR has developed a dominant presence in the region's private-equity scene, having raised a $6 billionAsia fund last
year, the largest private-equity fund ever for the region. For KKR, the price is nearly three times what the U.S.
private-equity firm paid when it bought the brewer in 2009 for $1.8 billion. KKR later sold half of its stake in
Oriental Brewery to Affinity, a regional private-equity firm.
Belgium's AB InBev sold Oriental Brewery, maker of Cass beer, to KKR to help pay down debt following its $52 billion
buyout of Anheuser-Busch in 2008. Until now, Lone Star Funds, which managed to sell a 51% stake in Korea Exchange Bank
in 2010, had seen the biggest private-equity exit from an Asian transaction, Dealogic data shows.
While the price tag appears to be dramatically higher than what KKR bought the asset for, the sale price was preset.
When they struck their original deal in 2009, AB InBev and KKR agreed that the brewer could buy the business back at a
multiple of around 11 times estimated earnings before interest, tax, depreciation and amortization by July this year,
people familiar with the situation have said.
Oriental Brewery estimates that its 2013 Ebitda was around $500 million, indicating that its sale back to AB InBev was
done around that pre-agreed 11 times multiple. A person familiar with the situation said that multiple is slightly
higher than what AB InBev agreed to sell it for five years ago.
Recent deals in the region have been done at higher multiples, in part because beer consumption in Asia is growing at
higher levels than the rest of the world. A wave of recent consolidation in Asia's beer market has also left fewer
targets. Globally, enterprise value to Ebitda multiples on alcohol deals are around 17.9 times at the moment, according
to Dealogic, and have averaged 14.2 over the previous six years.
Oriental Brewery is the top beer maker in South Korea and one of the country's biggest exporters. OB, as it is known
domestically, is the maker of Korea's best-selling Cass brand of beer. The firm chalked up $63.3 million of exports in
the first half of 2013, the latest available data from Korea Customs Office and Korea International Trade Association
show. Oriental Brewery's export volumes more than doubled in the years that KKR and Affinity owned the asset, a person
familiar with the situation said.
Some of those sales are for third-party products like Blue Girl, which is Hong Kong's top beer with a market share of
38.8% in terms of sales in the city, according to the company. The brewer's Cass Red is also Mongolia's top beer in
terms of revenue. The brewery also makes Budweiser for consumption within Korea and is the only brewer of Hoegaarden in
the world outside of the brand's home, Belgium.
Under KKR's ownership, Oriental Brewery displaced longtime top brewer Hite-Jinro Co. as South Korea's top brewer for
the first time in 15 years. Oriental Brewery's earnings have grown substantially under KKR and Affinity's ownership, at
a compound annual growth rate of 20.2% from 2009 to the current, $500 million level, which is nearly double what they
were in 2009, according to a person familiar with the matter. Oriental Brewery and rival Hite Brewery controlled 51% and
47% of South Korea's beer volume in 2012, respectively, according to Bernstein Research, which estimates Oriental
Brewery had an outsize 82% share of industry profits.
AB InBev plans to help grow Oriental Brewery's sales outside of Korea while also introducing some of its own brands
into South Korea where the market for premium beers is growing, a person familiar with the transaction said. The Belgian
brewer is funding the transaction with cash and existing debt facilities, the person said.
The deal is subject to regulatory approval but should it go through, it will be the biggest deal for AB InBev since
its $20 billion takeover of Mexican brewer Grupo Modelo SAB last year. It would also be the biggest Asian beer deal
since the Netherlands' Heineken NV acquired the rest of Asia Pacific Breweries Ltd., maker of Tiger beer, for $6.4
billion in late 2012.
For AB InBev, this deal bulks up its Asia portfolio. The brewer only has a small foothold in Asia outside of China,
where it has spent heavily through acquisitions and brewery investments to become the country's third-largest brewer by
revenue. South Korea accounts for 1% of Asia-Pacific's population but 3% of the region's beer volume, 4% of revenue and
5% of earnings before interest and taxes in 2012, according to Bernstein.
AB InBev isn't the only company eyeing deals in Asia. SABMiller's chief executive, Alan Clark, recently said his
company would like to bulk up through more acquisitions, particularly in Asia. SABMiller has a 49% stake in the joint
venture that owns Snow, China's leading beer brand, and spent $10.2 billion in 2011 to acquire Foster's Group in
Citigroup and Morgan Stanley advised KKR while Lazard and Deutsche Bank advised AB InBev on the transaction, people
familiar with the situation said.
Write to Cynthia Koons at firstname.lastname@example.org
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