To Heine Dalsgaard, Group CFO of Carlsberg, M&A is a discipline that you practise and slowly get better at. Today, Carlsberg has a structured process for acquisitions and a strong governance in place while still allowing people to bring new ideas to the table.

Carlsberg has not completed any transformational acquisitions for a long time. However, in recent years, the Danish brewing giant has completed many bolt-on transactions. The last three were conducted in largely shut down markets as a result of the global COVID-19 pandemic. The fact that the transactions were successful, despite the odds, makes Heine Dalsgaard proud on behalf of Carlsberg:

“It certainly is an achievement that we were able to complete three major transactions in 2020 in markets that everyone else turned their backs on due to the enormous uncertainty. This could only be done because we in recent years have worked specifically to improve our financial flexibility to act. For example, we acquired Marston’s in England at the peak of the COVID-19 crisis. The entire due diligence process took place in a virtual data room. Only at the final stage did we meet in person before everybody was ready to sign.”

Today, Carlsberg has a rigorous governance and process for acquisitions in place, but the journey getting there has been long for the old brewery. After the acquisition of Scottish & Newcastle in 2008, Carlsberg’s debt was higher than anticipated. When the new executive management took over in 2016, it therefore focused on reducing debt and restoring the company’s financial strength.

“It is no secret that during the Scottish & Newcastle transaction and the financial crisis, it was a turbulent time at Carlsberg. Therefore, it was natural for us to look to a more organic strategy which we named SAIL’22. Based on our assessments, we concluded that we would get the best return on our investments by primarily investing in our own brands, products and markets. As part of our strategic work with SAIL’22, we established some very clear priorities for capital allocation: 1) We will invest in organic growth, in our own brands, products, markets, competencies, etc. 2) We will reduce external debt and restore financial flexibility. 3) We will increase the dividends to shareholders to a level that compares to other global companies within FMCG. 4) We will distribute excess capital to shareholders via additional dividends or buy-back of own shares. 5) We will target acquisitions, but only when they create a clear strategic and financial value,” says Heine Dalsgaard.

Anchored in the strategy

According to Heine Dalsgaard, it has been crucial for Carlsberg’s success to deliver on the SAIL’22 strategy, restoring the capital market’s trust and the company’s financial flexibility. Heine Dalsgaard has a clear position on both current and future acquisitions: They must either solve a specific strategic problem or give Carlsberg a clear strategic comparative advantage, and they must live up to the company’s requirements in terms of financial return:

“When it comes to M&A, the most important thing for us is that it is clearly anchored within our strategy. One of our challenges in England was that on the one hand, we did not have a sufficient distribution network via on-trade pubs, restaurants, etc., while on the other hand, we did not want to run our own pubs, as it is not our core competence. Our joint venture with Marston’s PLC addresses this challenge. Today, we control 60 percent of the company that brews beer and sells the various beer brands from both Marston’s and Carlsberg, while Marston’s PLC operates more than 1,400 pubs. It is a different set-up to reach consumers, but it addresses a key part of our strategic challenge."

Completing successful M&A transactions requires a special combination of firm business understanding and specialist knowhow within the M&A discipline, and Heine Dalsgaard recognises the efforts of Carlsberg’s in-house M&A team:

“While we may have ensured financial flexibility to act and preach commitment, we need to bear in mind that it takes a good deal of creativity and hard work to find the right solution.”

Heine Dalsgaard, CFO, Carlsberg

“Many companies are used to controlling 100 percent. In the future, I think companies will need to find more creative solutions in order to recognise each other. We can only do this because we have some dedicated M&A specialists here in Valby who both are technically skilled and know the business very well. They are among the absolute best in Denmark.”

Avoid deal fever

When asked about his role as CFO, Heine Dalsgaard says that he sees himself as part of the overall executive management as well as responsible for the financial engine of which M&A is a natural part. The fact that one plays both roles emphasises the importance of the commitment as a CFO to be involved in the entire M&A process, he says:

“I believe that the CFO should participate in the overall acquisition process to help ensure that only transactions that create value for the company’s shareholders are completed. It is clear that we always need a professional due diligence to cover all risks; however, I am also very aware that M&A is an integral part of the strategic toolbox, while, on the other hand, it may be important not to complete certain transactions. In the final M&A phase, there may be a sense of deal fever, because we have already fallen in love with each other, and in that case, it is the executive management’s responsibility to ensure that we remain disciplined and do not let ourselves be carried away. Of course, it is OK to dream big, but most importantly, we must follow our strategy and ensure that we create value.”

Heine Dalsgaard plays an active role throughout the M&A process, and he believes that the rest of the business management should too from an early stage: “When we make acquisitions, we always make sure that both the business owner and I are part of the steering group. In my opinion, the business management is always ultimately responsible for an integration. This is best done when you have been involved in the process right from the start.”

The future

Looking to the future, Heine Dalsgaard predicts more acquisitions for Carlsberg:

“There is no doubt that we will continue to complete bolt-on transactions, not least because these transactions can support value creation, and today we have the financial flexibility to act. Over the past five years, we have reduced our debt from approximately DKK 35 billion to approximately DKK 20 billion, and today, we have the type of conservative balance sheet that almost seems to have become a trend. When we launched the strategy, our shareholders’ message was that we must return all profits to them. Today, they have given us the green light to invest in M&A where it makes strategic sense and creates value. However, this is a privilege we have earnt over the years, and we do not want to misuse their trust."

And will we complete more transactions via Zoom or Teams? Certainly, says Heine Dalsgaard, because the COVID-19 crisis has taught us that we do not necessarily have to travel the world:

“However, I still think that most transactions should be concluded at a physical meeting, where we look each other in the eyes and ensure mutual trust. I would not even buy a used car without having met the seller first, let alone a company worth several billions.”

Four tips from Heine Dalsgaard

  1. Establish clear rules for capital allocation, including debt level criteria, financial gearing and shareholder return, and ensure that these are clearly communicated to the company’s stakeholders.
  2. Join from A to Z: A CFO should not just be pulled in to assess risks or ensure correct accounting. Play an active role throughout the process, from identification to valuation, due diligence, closing and integration. It is important that there is a very clear governance and process for M&A in order to ensure a clear division of responsibilities.
  3. Make sure that you have the right M&A competencies in-house: The CFO is responsible for ensuring a strong team of dedicated M&A specialists who have both the technical expertise and general business knowledge.
  4. Be creative and see opportunities: The old idea that you either buy all or nothing is no longer valid. Many strategic challenges can be addressed in joint ventures or other creative set-ups; all it takes is the creativity, hard work and the technical skills to create the right set-up.

A clear governance for M&A

At Carlsberg, the M&A process is anchored in a clear governance structure:

  1. Once a year, the Board of Directors and the Executive Committee discuss the strategic priorities, the general acquisition landscape and potential acquisition candidates relative to the company’s financial strength and scope for action.
  2. Strategic considerations and potential acquisition candidates are analysed on an ongoing basis, and the overall responsibility is anchored and discussed in the Executive Committee.
  3. The company’s M&A committee meets once a month – and when needed – to prioritise efforts and follow up on possible projects.
  4. Once an acquisition candidate has been identified and the project has been specified, a project group is set up, including the M&A team, the business management and the CFO.

Contact us

Kim Hendil Tegner

Partner and CFO Programme Leader

+45 30 93 64 46

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