Along with other large CPG players, The Coca-Cola Co.’s appetite is returning for bolt-on acquisitions of startups or emerging brands to jumpstart innovation, expand geographically and rebalance its portfolio, but may be early 2027 before it inks a deal, according to CEO James Quincey.
The tried-and-true strategy “was important in the pre-COVID years as a driver of the industry and portfolio expansion for us,” but it fell by the wayside when the pandemic hit and many CPG giants, including The Coca-Cola Co., opted to rationalize their portfolios and focus on best-sellers while they sorted snarled supply chains, he told investment analysts gathered at the Morgan Stanley Global Consumer & Retail Conference Dec. 2.
Of the 30 billion-dollar brands that Coca-Cola has managed since its inception, half were built through M&A and of those 12 were “very small” when they were acquired, Quincey told investors earlier this year at the Consumer Analyst Group of New York Conference.
At the time, he said the largely bolt-on M&A strategy was an “incredible way” to deliver value through scaling around the world, and Coca-Cola’s track record was “enviable.”
Yesterday, he added, “bolt-on M&A supported innovation will start to come back as a bigger feature for us and for the industry in the coming years.”
But, he cautioned, “it’s not an overnight thing.”
Have innovative brands proved themselves worthy of acquisition?
“The bulk of bolt-on M&A tends to be stuff that was invented five to eight years ago,” said Quincey. He explained that is how long it takes for an acquiring company, like Coca-Cola, to feel confident the concept has “enough longevity” to suggest “it actually might work in the long run” and has potential for international expansion.
According to that timeline, the primary candidates for bolt-on would have been created in 2020, “which was not a very good year for launching innovations” due to the pandemic.
“So,” he added, “there is a bit of a thinner pipeline.”
Coca-Cola is consolidating its capital
The suggestion that strategics may need to wait a few more years for viable targets to emerge is not the only reason that Coca-Cola is taking a wait-and-see approach for bolt-ons, despite its positive track record managing them.
The company also wants to put to bed its long-running dispute with the IRS, which alleges the company improperly shifted profits to foreign subsidiaries to avoid US taxes by under-licensing its intellectual property. The company “strongly believes the IRS and the Tax Court misinterpreted and misapplied the applicable regulations involved in the case,” and has “vigorously” defended itself.
Quincey said yesterday that “the appeal should play out by the end of … 2026 or early 2027,” which would be “an important milestone in terms of how much capital is available, more or less, than we have today.”
Coca-Cola remains ‘opportunistic’ about M&A
While Quincey stressed that “in all likelihood,” Coca-Cola would not move on M&A between now and then, he did note that “if something comes up on the bolt-on side, then we will be opportunistic.”
He explained that, just as the company has done for all previous bolt-ons, it would consider if the opportunity has the right strategy, price, leader and execution plan.
He emphasized that Coca-Cola is far from alone in its current assessment of bolt-on acquisitions and he expects that now that COVID is in the past, “we’ll see more innovation in the industry and more potential for bolt-on M&A.”
