Richest Coffee Takeover in Asia Seen With Super Group: Real M&A

By Angus Whitley, Bloomberg

Super Group Ltd. (SUPER) may be the best takeover option for beverage companies anxious to corner a piece of Asia’s expanding instant-coffee market, as long as they’re willing to pay up.

The maker of Super Coffee sachets offers suitors established brands and a distribution network across Southeast Asia, said UOB Kay Hian Pte. Japan’s Kirin Holdings Co. (2503) and Suntory Beverage & Food Ltd. (2587) are among logical buyers that may need to offer at least $2.2 billion to convince Super’s founders to sell, said Malayan Banking Bhd. Such a bid would be the most expensive relative to net income for any coffeemaker in Asia, according to data compiled by Bloomberg.

Regional demand for food and drinks has climbed with rising wealth, and no peer in developed Asia has increased profit faster than Super in the past five years, the data show. Southeast Asia’s instant-coffee market is projected to expand 38 percent from last year to almost $4 billion in 2017, according to Euromonitor International.

Super “will definitely be one of the biggest beneficiaries of the increasing consumption,” James Koh, an analyst at Maybank in Singapore, said in a phone interview. “The appeal here is you have a market leader in its space and you immediately get access to some very attractive markets.”

Candy Chng, a Singapore-based spokeswoman for Super, didn’t reply to an e-mail seeking comment on potential bids and didn’t answer calls to her mobile phone. Kan Yamamoto, a spokesman for Kirin, declined to comment, as did Suntory Beverage spokeswoman Tazuko Ikeda.

Instant Coffee

Super, which sells Owl-branded coffee and instant cereal, owns factories from China to Malaysia, its website says. Branded products account for about 65 percent of the 27-year-old company’s revenue, while food ingredients make up the rest, according to Super’s most recent quarterly results.

It’s unusual for instant coffee makers of Super’s size to control their raw materials and production — and that’s part of the company’s allure, according to Alfie Yeo, an analyst at DBS Group Holdings Ltd. in Singapore.

“Super offers any potential buyer solid brands, an integrated ingredients and manufacturing chain, and an extensive marketing reach in Southeast Asia,” Yeo said in an e-mail.

Tokyo-based companies such as Kirin, Suntory Beverage or Asahi Group Holdings Ltd. (2502) would probably have to pay more than S$5 a share to buy or take control of Super, said Maybank’s Koh. That would be at least a 36 percent premium to yesterday’s closing price of S$3.69.

Expensive Bid

Such a bid would be valued at S$2.79 billion ($2.2 billion), or about 29 times analysts’ average estimate for net income this year. No coffeemaker in Asia has ever fetched such a multiple, and the industry median worldwide is 16, data compiled by Bloomberg show.

All the possible buyers named by Maybank have a history of targeting assets in Southeast Asia.

Asahi in 2011 laid out plans to buy assets across Southeast Asia as part of 2015 revenue goals, while Kirin failed in an effort to buy the food and drinks unit of Singapore’s Fraser & Neave Ltd. Takuo Soga, a spokesman for Asahi, declined to comment when asked if the company would be interested in acquiring Super.

Suntory Beverage

Suntory Beverage, the maker of Orangina and other soft drinks, said last year that it was prepared to spend about $5 billion on deals. Its parent Suntory Holdings Ltd. this week agreed to buy Beam Inc., which makes Jim Beam and Maker’s Mark whiskey, for $16 billion.

Super “is a very good platform” for Japanese acquirers, said Koh at Maybank. “You have the distribution, you have the local know-how, and then on the Japanese side, typically they have very strong product research and development.”

As demand for instant coffee in Southeast Asia grows, consumption in Myanmar will expand at the fastest pace, according to Euromonitor. Sales in Thailand and the Philippines are the highest in the region, Euromonitor data shows.

Super introduced new branded coffee products in the expanding Chinese market in August.

In a market dominated by Nestle SA (NESN), demand for instant coffee in China will surge 52 percent between 2012 and 2017, Euromonitor said in March last year. Even as freshly ground brews gain popularity, instant versions will account for 98 percent of total China sales in 2017, Euromonitor said.

Super generated average annual earnings-per-share growth of 21 percent in the past five years, according to data compiled by Bloomberg. That beat 15 drinks makers in developed Asia with a market value greater than $1 billion, including Kirin, Singapore’s Yeo Hiap Seng Ltd. (YHS) and Coca-Cola Amatil Ltd. (CCL) in Australia, the data show.

Super’s profit may rise 11 percent in 2015 to S$108.8 million, according to analysts’ forecasts compiled by Bloomberg.

Any food and drinks company looking to improve its Southeast Asian distribution — a difficult and time-consuming task — could consider buying Super, Andrew Chow, a Singapore-based analyst at UOB, said by phone. In Myanmar, for example, Super’s market share is as high as 50 percent, Chow said in a report last month. In China, its share is insignificant so far, he said.

Because Super expanded its branded coffee in China only in August, shareholders may resist any acquirer before those efforts yield results, Chow said.

Appeasing Founders

“They may not be that keen unless the price is really ridiculous,” he said. “If they can graduate from an ingredients supplier in China to a consumer-branded supplier, there should be an argument for higher valuations.”

The founders of Super are unlikely to sell for a price as low as S$5 a share because the stock was near that level as recently as August, Chow said. Super’s shares have surged more than fivefold in the last four years.

Chairman and Managing Director Teo Kee Bock, who pioneered Super’s combination of coffee, creamer and sweetener in one sachet, and two other founding directors owned about 33 percent of the shares as of March 2013, according to the company’s 2012 annual report.

Super may be more likely to buy assets than be acquired, said Yeo, the DBS analyst. Darren Teo, Teo Kee Bock’s son and the head of corporate strategy and business development, said in July that Super was planning its first acquisition in a decade, looking for coffee makers with established brands.

That may not stop bidders pursuing Super to accelerate Southeast Asian expansion, said Chow at UOB.

“It’s not easy to build up distribution very, very quickly,” he said. “The attraction of Super Group is their strong distribution and decent branding.”