Germany’s discount beer producer Oettinger not for sale

What if Germany’s major cheap beer producer Oettinger (10 million hl) was to change hands? Who would want to buy the secretive family-owned company? Although it was only a teenie-weenie rumour that seems to have passed most of Germany’s gossipy beer industry bigwigs by, Oettinger’s Managing Director and owner Dirk Kollmar was still quick to extinguish it. He told infodienst.de, an online news service, on 4 July 2012 that his company "is not on the menu because it is writing the menu".

The most expensive Oettinger beer I have ever had was in Moscow a few months ago. I paid EUR 7 for a pint – more than I would have paid for a crate (10 litres) of the beer back in Germany.

For years, if not for decades, Oettinger brewery has been the pariah of German beer because of its positioning in the discount segment. In the ranking of major German beer brands, it was often ignored by Germany’s big brewers with the argument that its eponymous brand Oettinger was not a brand but a merely a generic label they stuck on their bottles. Then there was the not so funny discussion whether Oettinger was really a brewery and not just a logistics company with five breweries attached. Oettinger self-distributes to the off-trade and ignores the on-trade.

Still, there is no denying that Oettinger has become a major player in the German market. It brews about 6.8 million hl of its own brand and another 3 million hl of own-label products. Moreover, it exports about 2.6 million hl (all figures for 2011), according to Dr Kelch, a market researcher for BRAUWELT.

All this makes Oettinger the fourth-ranking German beer producer (as measured in domestic volumes) with a 7 percent market share. Add to that 2.6 million hl of beer exported and Oettinger becomes a 10 million hl takeover target.

It’s not a moot point to speculate as to who among its German competitors could buy it. In terms of volume, Radeberger has a 12.5 percent market share; AB-InBev has 7.9 percent; Krombacher 5.6 percent; Carlsberg 4.5 percent; Bitburger 4.1 percent and Paulaner (Schörghuber/Heineken) 3.0 percent.

Radeberger, which is owned by the private Oetker Group (food, beverages, shipping) might ponder making an offer. They have always said that they want to become a consolidator of the German brewing industry. Although they may not be convinced that Oettinger is really an established brand, they would nevertheless gain a sizeable export business with well-established structures – something they lack. Radeberger only exported 560,000 hl beer last year. But above all, they would acquire a 10 million hl business at perhaps EUR 30 per hl in one go instead of having to spend years and years gobbling up smaller players.

Which brings me to Oettinger’s enterprise value. Although the group does not issue financial details, some think that Oettinger’s profits in EBITDA come to EUR 50 million. Others think Oettinger’s EBITDA could be higher at EUR 90 million.

Let’s take the EUR 90 million estimate and do a bit of figure crunching. An EBITDA of EUR 90 million could still translate into an enterprise value of EUR 270 million, if you assume an EBITDA multiple of 3, which is what private equity used to pay in Germany.

That’s a low multiple compared to what other international brewers have paid recently: SABMiller paid a multiple of 12 for Australia’s Foster’s last year and AB-InBev a multiple of 16 for Mexico’s Modelo this month.

The trouble with evaluating a business like Oettinger’s is: how much is a discount beer brand worth? How well-recognised is it and how sustainable?

Also, potential buyers would have to take into account that Germany’s beer market is not a handy duopoly yet, but highly fragmented with no clear market leader. Brewers slug it out on price, which has had the effect that, with all the price promotions, the premium beer segment has almost collapsed into the mainstream segment. Oettinger has felt the "competition from above", i.e. major national brands selling a crate of beer for under EUR 10. Last year, the Oettinger brand lost about 130,000 hl in volume over 2010, says Inside, a trade publication, as more consumers traded up from the cheap Oettinger beer to the only marginally more expensive national premium brands when they were on offer.

Even in the light of the above, an enterprise value of about EUR 300 million for Oettinger seems absolutely realistic, given that Oettinger probably has a very low debt load, if any. Besides, its plants are so well maintained that they will not require any major investments in years. That makes Oettinger fit perfectly the predatory pattern of private equity. Any private equity firm could immediately start cashing out on its investment.

As said, Mr Kollmar has ruled out that Oettinger is for sale. But how often have we heard that from other industry players in the past?