Suntory, a Japanese alcohol company, is considering acquiring Distill, a UK-based liquor brand. A report analyzes the financial and strategic performance of Distill to evaluate the feasibility of the acquisition. Distill has experienced declining revenue but improved profit margins in recent years. The acquisition would expand Suntory's brand portfolio and give it access to Distill's existing markets and skilled employees. A successful integration would require managing cultural differences, developing trust between employees, and controlling costs during the transition.

1. O n l i n e A s s i g n m e n t H e l p
Charlotte Alexander
This is a solution of business
establishment Assignment in
which we discuss Developing
business financial and strategic
performance.
Business
Establishment
Assignment

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Introduction
With the liberalization in trade policies, there are increasing number of new
business establishments taking place all over the world. In many countries
where initiation of new businesses communication by foreign companies is
not easier; entrepreneurs adopt different other routes like acquisition,
mergers, joint ventures and foreign institutional investments. In respect
with this aspect, the following report is carried out to evaluate the
feasibility and profitability of the acquisition of a liquor brand. The firm
aiming to acquire is Suntory which is established in Japan, while the target
business Distill is based in UK. The objective of the report is to analyze the
financial and strategic performance of Distill in terms of profitability and
sustainability.
About Suntory
Suntory is engaged into brewing and distillation since 1899 and is
considered as one of the oldest in the alcohol industry. The enterprise also
produces soft drinks and sandwich as part of its expansion. Suntory jumped
onto international platform and became one of the largest distillation
beverages with the acquisition of Beam Inc in 2014.
About Distill

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Blavod Wines and Spirits plc is engaged into production and marketing of
owned and third party brands across the world. The firm changed its name
to Distill in 2014 in order to reflect the nature of the business. The previous
company was result of the merger between Blavod Black Vodka and
Extreme Beverage.
TASK 1
1.1 Value creation and the success of an M&A
transaction
The acquisition of Distill is not only for the purpose of business and market
share expansion. It equally requires sufficient strategies to support the plan
and deliver desired results. Suntory can also develop the existing Distill
brand and focus on leveraging the benefits from the existing projects.
 Trust – It is essential for the management of both the brands to develop
trust among themselves, employees and customers to support in managing
operations post acquisition. This is important, so that existing and
profitable projects of Distill remain as usual (Rigby & Bilodeau, 2007).
Trust among the employees is also an important factor in the success of the
acquisition to retain skilled employees.
 Common goals – The acquisition deal will succeed when the goals and
objectives of both the companies are similar for the long term aspects
(Weihrich & Koontz, 2005). Difference in the overall goals will impact the
functioning and operation of the larger firm.

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 Cost control – The acquisition deal will certainly require huge investment
in various areas. So it is important that Suntory will control cost and
eliminate excess capacity. Business areas in terms of physical and human
resources not leading to effective results must be identified and evaluated
for cost purpose (Robinson & Harris, 2000).
 Improved market share – Suntory will definitely benefit from the
existing market share of Distill. It is essential for the expanded firm to
maintain the brand image and reputation with the stakeholders to avoid
any unwanted issues (Slack, Comtois and McCalla, 2002).
 Research & Development – An important success factor for Suntory
will be the acquisition of human skills and abilities from Distill (Rossi &
Volpin, 2004). The expanded firm can utilize this for R&D and other
important business areas.
 Competitive advantage – It is also important for Suntory to continue
maintain the competitive advantage developed by the Distill. Any lost
competitive advantage would hamper the position of Suntory in present
and future (Weihrich & Koontz, 2005).
 Combined synergies – The acquisition of Distill will enable Suntory to
gain from the exclusive products and service areas owned by Distill.
 Efficient use of employees’ capacities – The expanded larger firm will
increase the number of employees allowing the business to restructure and
utilize full potential of the human force (Slack, Comtois and McCalla,
2002). Existing employees of both the firms can be shuffled and placed into
new groups and projects.

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1.2 Current M&A and Private Equity strategies
of and appraise suggestions for improvement
of current practices
Suntory has earlier successfully acquired Beam Inc and is gaining positive
results. This time the enterprise is planning to target a UK based company.
There are certain factors which need to be considered by both the firms in
the deal to avoid unnecessary issues and improve the performance
(Cartwright and Cooper, 2012). Following are discussed some of the points
which must be considered by Suntory and Distill before and after the
acquisition -
A risk management approach should be the foremost task for both the
firms. There may be certain risks that are exclusive to both Suntory and
Distill and may impact the functioning of the expanded firm. A consultancy
can be hired to identify and manage risk associated with the market and
business (Moeller & Schlingemann, 2005). Another important area is to
evaluate the supply sources. Based in different countries, it is possible that

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both companies were sourcing from different suppliers. At present Suntory
is not planning to move the manufacturing and the factory area, but it may
expand it in the near future. So it is important that current suppliers must
be checked to determine if they are ready to bulk material at low cost. It is
recommended to identify new sources of supply in the international market
to drive economies of scale.
A change financial management program must be planned to help the
acquisition deal go smoothly with the equal support of employees. Change
management enable employees of both the organizations to accept the
changes taking place in their job projects and the group they are working
with. Change management becomes more essential for Suntory and Distill
as firms are operating in different parts of the world (Hopkins, 2002). The
culture, beliefs and values are altogether different. It is also possible that
some employees from both sides resist changes as they are used with
existing projects and groups. In this case, outside consultancies should be
contacted to guide and support employees to accept changes.
1.3 Evaluate the relative importance of the key
elements in a successful M&A and Private
Equity transaction
There are key elements specific to every deal and organisation to support
large transactions. The acquisition deal must be supported by predefined
strategies and objectives, so that it results into overall improvements.
Below are discussed some of the key elements that must be taken care of for
the success of the acquisition deal –

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 Improve competitive behavior – Suntory is acquiring a brand which
has its own established market on the global platform. Distill has its own
product portfolio which has been developed through extensive research and
development over the time period (Schuler & Jackson, 2001). Thus Suntory
must develop those brands in its existing market, so that it earns more sales
and profit. In addition to this, it distributes and market own products in the
existing market of Distill.
 Transformation deal – The acquisition must not be limited only to the
expansion of product portfolio and profit maximization. Rather, it should
define strategies to transform the entire organisation and restructure its
functions. This is important to charge and encourage the workforce to
contribute towards the progress of the organisation (Hijzen, Görg &
Manchin, 2008). Employees working under the same boss and on the same
projects get bored and this is one of the reason they change employer. This
can be controlled through acquisition deal through job rotation and change
of work groups.
 Leverage economies of scale – Suntory after acquiring the Distill will
require additional raw material and unfinished goods to support the
requirement. This situation can be dealt by leveraging the economies of
scale offered by existing suppliers. Other than this, new suppliers can be
contacted who are in the establishment phase (Weihrich & Koontz, 2005).
This will support the company to control the cost while producing and
selling more at the same time.
 Reach new markets – The expanded firm must develop its goals and
target new markets to establish competitive advantage and gain early share.
The firm will have huge product portfolio to be offered to the new
customers.

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 Develop Capacity – An important key success element for Suntory would
be remove excess capacity which is not generating any revenue. On the
other hand, it must also focus on expanding those business areas that are
contributing to more revenue (Robinson & Harris, 2000). This way the new
firm will be able to optimize the functions and operations.
 Global employee management – Human resources in present time are
the most important part of the organisation, as they contribute effectively
in the success and progress by leveraging the capacity of physical resources
(Moeller & Schlingemann, 2005). The expanded Suntory after the
acquisition of Distill should deploy employees at various global locations to
further support in the business development.
Task 2 Maximum price to pay & justify
Recommendation
2.1 Understand how to value a target company
for an acquisition transaction
An important part of the business valuation is its financial performance
which reveals the result of the strategies and decision making ability of the
management. The financial performance of Distill is evaluated with the
help of annual results of last three years (Hijzen, Görg & Manchin, 2008).
Below is provided a table that provides analysis of profitability and liquidity
position of the company.

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Table 1: Finance Performance of Distill
Amount in GBP Million 2012 2013 2014
Cost of Sales 77.27% 76.83% 76.09%
Gross Profit 22.73% 23.17% 23.91%
Operating Profit -9.45% -16.35 -15.26
Net Profit -10.94% -19.5 -16.3
Current Ratio 0.94 1.53 2.45

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Receivables Turnover 3.92 4.89 5.56
Inventory Turnover 7.72 8.37 8.61
Fixed Assets Turnover 172.83 184.63 185
Revenue %
Year over Year -20 -17.36 -36.46
3-Year Average -8.38 -23.08 -25.11
5-Year Average 7.1 -1.55 -16.58
10-Year Average 14.87 9.63 2.8
Taking into consideration the profitability data, the table clearly shows that
cost of revenue is tightly controlled and maintained in the last three years.
This supported increase in gross profit over the same time period. The cost
percentage was 77.27% in 2012 which improved and reduced to 76.09% in
2014. The gross profit which was 22.73% in 2012, increased to 23.91% in

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2014. So there is a direct relation between cost and gross profit of the
company. Taking into account the revenue, it is going in the negative
direction from last three years. The three year average was -8.38% in 2012,
increasing to 36.46% in 2014. Five year average also reveals the same
evaluation and is contributing to loss year over year. The 10 year average is
again all time low (Rossi & Volpin, 2004). The operating profit although
gains support from the cost and gross profit margins and has been
improved slightly from last year, but are still in negative. Net profit of
Distill was -10.94% in 2012 which increased to -19.5% in 2013, but
controlled to -16.3% in 2014. This is supported by the improved operating
margins and lower sales and administration cost.
Read more about : International Human Resource Management
Furthermore, the liquidity position of the company is improved despite
negative profits. The current ratio as calculated through current assets and
liabilities was 0.94 in 2012. The ratio improved to 1.53 in 2013 and to 2.45
in 2014. The increase in ratio is the result of excess funds raised by Distill
earlier in this year. A notable thing in this regard is that market forces are
still positive about the future prospects of the company. Despite all time
negative sales and profits, the ability of the management reveals in the fund
raising (Slack, Comtois and McCalla, 2002). This excess cash has been
raised to support the need for market expansion and product development.
Thus Suntory will have both physical and human resources to leverage the
benefits and gain through the ability and skills. The cost and sales aspect is
also important and reveals the ability of the management in controlling it
up to the certain level (Rigby & Bilodeau, 2007). This also shows the skills
and contribution of the workforce which have been working towards the

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progress and betterment of the organisation. In many case, when firms are
moving to negative results, often shareholders and employees ditch at the
first place.
2.2 Critical analysis of comparative issues in
M&A and Private Equity
In business environment, huge deals that involve amalgamation of two
companies are not isolated from issues. As both Suntory and Distill are
based in different countries, it is likely that there were some issues that
affect before and after the organisation functioning. It is thus essential that
the management of both the organisations need to identify the issues that
are existing and that may affect after the acquisition (DePamphilis, 2009).
Following are discussed some critical issues that may affect the potential
deal and the functioning in future –
 Culture – No two have the same type of organizational culture and
behavior. Moreover, employees working with one organisation for long get
used to it. Thus, it is here important that the management should decide on
the continuation of the particular type of culture after the acquisition.
 Employee management – Another issue that may affect the business is
the employee management style and leadership. Like organizational
culture, there is also huge difference in the management style and
leadership of both the organisations (Cartwright and Cooper, 2012). If
these issues are not dealt carefully, it is possible that it affects the capability
of the enterprise.

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Recommendation for the deal
The above strategic and financial evaluation of Distill carried out to judge
the feasibility of the potential acquisition by Suntory. From the strategic
analysis, it has been analyzed that despite poor financial performance year
over year from the last four years, the management and the market forces
are still positive about the company prospects. The shareholders and
investors provided huge funds for the new projects (Moeller &
Schlingemann, 2005). The decision making ability of the management
proved successful and is resulting into improving sales figures and cost
control. This justifies that future prospects of Distill look promising and
will definitely generate results. Acquisition of Distill will provide Suntory
with the expanded catalog that has built its brand image in the market.
Along with this, the third party brand catalog will also add to the existing
portfolio of Suntory (Rigby & Bilodeau, 2007). Apart from this, Suntory will
also benefit from the skilled human force which is contribution effectively
towards the progress of the company. In addition to this, Suntory will also
gain from the existing market reputation of Distill. Both the companies are
operating on the global level, but they have their own markets in which they
have occupied huge and increasing share year over year (Hijzen, Görg &
Manchin, 2008). Thus Suntory will be able to market its own brands in the
existing and high performing markets of Distill.
Conclusion
From the above report, it can be concluded that acquisition of Distill by
Suntory will proved to be beneficial for both the companies. The report
provides a strategic and financial performance analysis of Distill from the

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point of Suntory (Hopkins, 2002). Financial evaluation of Distill is based
on past three year annual data. In addition to this, decision making ability
of the management of Distill is also discussed which shows that despite
negative performance, the skilled workforce is able to work towards the
betterment of the organisation.