Is Fevertree Drinks plc now a takeover target for Unilever plc?
Fevertree Drinks' (LSE: FEVR) success since it was founded in 2004 has been nothing short of phenomenal. In a little over 10 years, the firm has grown from a start-up into a multi-billion pound business. Revenue is expected to hit £185m this year with a pre-tax profit of £58m projected. Over the past four years, earnings have grown at a compound annual rate of more than 100%.
At the same time Unilever, one of the largest consumer goods companies in the world, has been struggling to retain its relevance among consumers in developed markets (in emerging markets the group is doing just fine). The owner of the Dove, Knorr, and Marmite brands has not been as successful as it could have been in developing new products, so management has resorted to bolt-on acquisitions. The largest of these bolt-on deals is male grooming business Dollar Shave Club. Other businesses acquired last year include Living Proof Inc, the innovative premium hair care business and organic herbal tea specialist Pukka Herbs Ltd.
And after flogging its spreads business for EUR7bn, the group will be flush with cash for further acquisitions. Fevertree could be one of them.
Time for a tie-up?
A Fevertree-Unilever tie-up could now be on the cards thanks to the appointment of one of the latter's top bosses as a Fevertree non-executive.
Yesterday, the drinks group announced that Kevin Havelock, who is currently the global president, of "Refreshment at Unilever with responsibility for the Group's EUR10bn revenue global beverages and ice cream business" had joined Fevertree as a non-exec. Mr Havelock has been on the consumer goods giant's Executive Committee since 2011 according to the press release.
Of course, this may be nothing more than an astute appointment, but it does hint at the possibility of a takeover. Having a bridge between the two companies means Fevertree is undoubtedly on Unilever's radar.
A guessing game
Speculating on M&A activity is a risky game as it's almost impossible to second guess what companies are thinking. Still, for a firm like Fevertree, which has a record of impressive growth and a strong brand, you're unlikely to be disappointed if no deal ever emerges.
What's more, with an experienced hand like Mr Havelock now helping to steer the ship, Fevertree's growth is unlikely to end any time soon. After building a solid foothold here in the UK, the business is expanding overseas.
During the second half of 2018, the group is planning to begin direct sales to the US. It has had a presence in the US for over a decade now, but products have been distributed through a partner. This year, the firm is planning to set up its own US base and begin direct distribution to existing customers, as well as new sales.
As this growth unfolds, I believe that the company's growth will likely surpass City expectations. Indeed, analysts have only pencilled in earnings growth of 4% for 2018, which looks to be extremely conservative to me.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of and has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.