Coca-Cola and Pepsi’s core market of sugary drinks has been shrinking for years. But the coffee market is expanding. Coke boss James Quincey had been looking into this market for a while, and Costa in particular.
In May, Costa chief executive Alison Brittain was in Seattle attending a Microsoft conference. Quincey reached out to Brittain for a chat over a latte.
Coke was looking to expand into the coffee market at the global stage and in a big way. Costa, world’s 2nd largest coffee company, has a scalable high-quality coffee vending machine technology. It has its own plans of international expansion, particularly into Germany. But it was willing to listen.
With 10 million drink machines outside the US alone, Coke could place a Costa next to its vending machines – or even integrate coffee vending into its current machines. So it knew that Costa would be a great strategic fit for expansion.
Now the numbers… a stand-alone Costa was valued at 10 times its annual profits. However, Coke agreed to pay 16.5 times. In other words, Coke paid £1.5 billion more than a private equity firm would pay. That is a 40% premium.
Here is the lesson – when selling a business, look for a strategic buyer, preferably from outside your industry.
