JAB Holdings has just made a deal that has confused many in the beverages industry, so why does this family business’ decision make sense to me?
The Luxembourg-based company, which mainly manages the wealth of the Reimann family from Germany, and also owns Krispy Kreme Donuts, Keurig Green Mountain, and Caribou Coffee, recently snapped up the US soft-drinks brand Dr Pepper for $18.7bn (approx. £13.4bn).
However, over the last five years, JAB has spent around $30bn (approx. £21.5bn) on café assets, which has caused many business analysts to wonder aloud about the wisdom behind its latest deal. Well, perhaps JAB thought ‘what’s the worst that could happen?’
In my view, this family firm’s business advice is spot on, particularly in the long term when it comes to improving business growth. Given that JAB, like most family-owned businesses, is free from shareholder interference, it can be less hesitant when it comes to decisions like the Dr Pepper deal.
The Reimanns trust three business advisors to manage their wealth, so they can make quick decisions that can surprise the market.
If you consider that most large firms will have pension funds and institutional investors expecting quarter-on-quarter results, along with share-price growth and/or any dividends that may have been promised or implied, the kind of option that is open to JAB is nigh on impossible for others.
Of course, the deal already had a complex set of stakeholders, particularly on Dr Pepper’s end, and this would be made even more challenging if JAB were listed.
The decision could prove highly lucrative for JAB, given that the combined business, Keurig Dr Pepper (KDP), should have a revenue of around $11bn (£7.9bn) per year. Of this, Dr Pepper’s shareholders will be receiving a special cash dividend, consisting of $103.75 per share, while they will also retain 13% of the combined firm.
When it comes to family businesses, they are more often than not led in a way that demands consensus. As such, this means that they can tend to be less susceptible to the ego-driven M&A errors that firms in the publicly-listed sector often run in to.
With more than 50,000 such M&A deals being announced in 2017 globally, and 2018 seemingly set to see a continuation of this pattern, many family businesses and similar SMEs could take some inspiration from the JAB-Dr Pepper deal.