Whether the topic is initial public stock offerings (IPOs), or mergers-and-acquisitions (M&A), the strongest brand names will deliver the biggest profits almost every time.
For starters, just look at the deal that seems to have fired off the latest round of global M&A deals: The $16.7 billion unsolicited takeover bid that Kraft Foods Inc. (NYSE: KFT) launched for Cadbury PLC (NYSE ADR: CBY). For Kraft, Cadbury's allure is its stable of established brand names - and a strong local identity in each of the markets it sells to.
If investors need a blueprint to sift through the flood of deals that are now expected in order to identify the best profit plays - the Kraft-Cadbury deal is it.
Kraft's hostile bid finds its inspiration in Cadbury's roots in the British Empire: Cadbury, a U.K.-based sweetmaker, grew up with the Empire and thrived with the Commonwealth, establishing a strong presence in such developing markets as India and South Asia.
Back when Cadbury moved into 'the Raj' - almost as a duty of loyalty - native or local markets were thin, at best. And the expatriate market of civil servants and business people from home was core. Today, however, India and other South Asia nations are booming markets that value the familiar and the homegrown.
After more than 60 years there, Cadbury is homegrown. Its market share is a dominant 70%.
The rapidly developing nations of the subcontinent are developing a middle class that likes to reward itself sweetly. The region's growing middle class has more money for little luxuries.
The bottom line: Cadbury's sales in India have grown by 20% annually for the past three years.
But the game is just beginning, as Cadbury is now also targeting lower-income consumers with chocolates that cost five cents or less, according to The Wall Street Journal.
Also attractive is Cadbury's well-developed distribution network, which reaches the small kiosks and family-owned stores that sell large volumes of candy - not only in India, but also in such Latin American markets as Mexico.
For Kraft, this was just too alluring to pass up. Indeed, in a conference call after announcing its Cadbury bid, Kraft executives said their company's chocolate cookies have seen rapid sales growth in mature economies. But they now hope to bring this growth to the developing world, in part using Cadbury's distribution network.
Similarly, brand awareness and brand loyalty are likely to drive investors to some of the U.S. IPOs that are scheduled for this fall.
One is Hyatt Hotels Corp., the major hotel and resorts operator and owner. Its 413 properties in 45 countries all bear a name that travelers have known since the 1960s. Despite the woes of the travel and hospitality industries, the Hyatt IPO is likely to draw strong interest from investors. Hyatt plans to raise about $1.15 billion.
Dole Food Co. Inc., taken private six years ago, brings one of the world's most recognized food brands back to public hands. With more than 150 years of marketing insight and a major international presence, the Dole name is a strong draw.
Further down the value chain, Dollar General Corp., operator of unabashedly downscale discount department stores, has filed for an IPO. Based in tiny Goodlettsville, Tenn., Dollar General is a staple of small towns across the nation, often forming the major Main Street retail presence. Dollar General's sales were up 13% in the second quarter, despite the recession's impact on consumer spending.
The company's name - while hardly as redolent of upscale comfort as Hyatt's - is a trademark brand. The company, owned by private equity firm KKR, plans to raise some $750 million.
[Editor's Note: For a Money Morning story that details global profit plays in the burgeoning mergers-and-acquisitions (M&A) and initial public offerings (IPO) markets, please click here. For a related Money Morning news story that details the M&A deals announced yesterday (Monday), please click here.]
News and Related Story Links:
- The Wall Street Journal:
Kraft Covets Cadbury's Know-How in India. - Wikipedia:
The British Raj. - The Wall Street Journal:
Hyatt Registers Share Sale of Up to $1.15 Billion in IPO - Investopedia:
Initial Public Offering. - Investopedia:
Mergers & Acquisitions.