LBO af Royal Unibrew

Steffen Sylvest Nielsen

Student thesis: Master thesis


In the past 15 years there has been a lot of consolidation in the brewing industry. This has lead to a fierce competition and a lot of rivalry. The industry is now dominated by four major players, who combined account for half of the entire market. The Danish brewery group Royal Unibrew has increased their profits severely during the past five years. The credit crunch in 2008 took a hard hit on Royal Unibrew and led to a smaller crisis in the company. After that the board decided that it was time for some changes. A new CEO was put in place to lift the company out of the crisis and back into a position of growth. The past three years Royal Unibrew has delivered a high stable return on invested capital of nearly 25% on average. Further the company has delivered a steady cash flow (to the firm) for the past four years. This information leads to see, if the company would be a good candidate (target) for a private equity sponsor. Therefore the purpose of this thesis is to evaluate whether or not the return, a private equity sponsor would be able to generate, is sufficient. To determine this, the thesis will incorporate elements known from corporate finance and valuation theory, such as strategic analysis, estimation of required rate of return, control premium to delist the company as well as a full valuation using the Adjusted Present Value approach. Further the thesis will determine the maxium amount of debt a private equity sponsor can borrow to do the leveraged buyout as well as the types of debt that can be used. This all leads to an internal rate of return, IRR, in the range of 10-12%. In the thesis it is determined that a private equity sponsor usually requires and IRR of ~25%, hence the conclusion is that Royal Unibrew will not be a suitable target for a private equity sponsor. To further strengthen the conclusion, a set of sensitivity analysis has been made to see if the case could turn in favor of the private equity sponsor. The sensitivity analysis revealed that only in the case, where the exit multiple (Enterprise Value to EBITDA) would increase by almost 40%, from 11,8x to 16,3x, the IRR would come close to the requirements of the private equity sponsor. This was concluded to be highly unlikely. All other tests showed that the IRR was extremely stable, and only in rare cases came about 13%, which is just about half the requirement. Therefore the final conclusion of the project is, that Royal Unibrew is definitely not a good candidate for a leveraged buyout.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2013
Number of pages164