Assignment on Mergers and Acquisitions

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A. ECONOMIC SETTINGS OF THE BUYERS INDUSTRY
Mergers and acquisitions today in figures speak for themselves: after years of failed attempts,
the total value of mergers and acquisitions between January and July around the world now
reaches 2.27 trillion dollars (1.7 trillion euros), the highest level high since 20013, when it added
3.14 billion, according to M&A reports. The jump is even more remarkable if one takes into
account that it is 43% more than in the first seven months of 2015, when it was 1.58 trillion
dollars(Nussbaum, Andrew J et al.9).Mergers and Acquisitions have become so common in
industries where competitions and industry rivalry is the in thing. The coffee industry is
becoming highly demanding as bigger companies aim at solidifying their positions as market
leaders. The food and beverage industry has seen astronomical increase in M&A in the last
couple of years especially in the United States of America. In the US the consumers are not only
hungry for quality food but also quality beverages which includes beverages like coffee
(Rickertsen and Gunther23-25). Exceptional coffee does well in restaurants and cafes in the US
and across the globe. People are willing to pay an extra dollar for just to get premium and quality
coffee products. There are many characteristics of this industry that makes it more competitive
than most of the industries in the US. JAB has been aggressive in the mergers and acquisitions in
the sector as well as Farmer Bros. this are two of the leading brands in the food and beverage and
are looking to expand their respective brands (DEPAMPHILIS, DONALD.16). Farmer Bros

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Company which trades as FARM in Nasdaq recently completed a acquisition of $42 million for
Boyd Coffee company a coffee roasting company (Sherman and Sherman16-18).
Boyd Coffee is the leading distributor of coffee products in the industry and distributes to
restaurants, healthcare and the convenience stores or supermarkets. Other buyers are strategically
looking for acquisitions to bolster their space in the industry. Nestle is also looking for a strategic
acquisition of Blue Bottle Coffee a leading manufacturer of coffee and roast for an amount that
they are not willing to disclose (Brown.108). This strategic acquisition is aimed at opening new
cafes and roasters where the company operates a chain of cafes. Blue Bottle Company operates
29 cafes and begun in 2002, after its acquisition, Nestle wants to open up 25 more cafes by the
end of 2017. This is a 25% increase in growth which will see it among the leading companies in
coffee production, distribution and sales (DEPAMPHILIS, DONALD.23-27).
JAB holding on the other hand is on a roll of acquisition to increase its market visibility. It is
an investment vehicle of Austria’s billionaire Riemann and his family. It has been growing its
coffee outlets through mergers and acquisitions with acquisitions of Peets coffee& Tea,
Stumptown Coffee Roasters and finally Intelligentsia Coffee. If the coffee is right, the money
will flow as consumers are demanding for more in the tasty industry (Feldman and Dresner15-
19).
The characteristics of this industry are as follows; it is extremely competitive and any slip up in
quality of coffee produced will lead to severe damage of the brand. Near similar products but
different varying to make them to be differentiated to make the company more differentiated.
The industry is also characterized by a desire to expand and to outdo the competitors in a lot of
ways (Dreher, Maximilian, and Dietmar Ernst112-116.).

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There are various challenges that occur before the mergers and acquisition transaction.
Most of these companies know very little in conducting M&As. The challenges that are involved
include valuation of the company that is being acquired. A lot of valuers either undervalue or
overvalue a company. This is even pronounced in valuation of a brand. Although most of the
companies acquiring are multinationals like Nestle with a lot of financial muscle, it possible that
overvaluation may lead to dip in profits. There are four types of transaction opportunities, the
first is companies that sell or reduce their businesses, the second is, expansion of the company
and the third is opportunity to buy public companies that are being privatized(Joint Ventures.96).
The industry is also facing challenges of mushrooming cafes that are popping up to compete for
space. It is a lucrative business that is meant to lure so many business people to open the cafes
and hotels. Venture capitalist finally is acquiring more companies that can barely survive.
Financial challenges are also challenges that face mergers and takeovers where the company
been acquired is overridden by debts and potential collapse (Dreher, Maximilian, and Dietmar
Ernst.16-24).
Competition for coffee beans has led to wars in the market where prices have shot
upwards due to demand for the best coffee beans. The various types of transactions means that it
is more difficult nowadays to purchase a companies. For the acquirer or the buyer, the biggest
challenge understands what can be adopted, changed and harmonized within the company. Other
challenges include retaining the staff or costs related to the employees and the benefits to be paid
after retrenching some of the employees (Gutterman12).
The industry trends that are applicable prior to the transaction are emergence of expansion
strategies that are indeed going to take the expansion strategy.

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B. BUSINESS ECONOMICS REASONS FOR THE TRANSACTION
Reasons stated in the annual report and the deal announcement.
The reasons given for the transaction in the merger and acquisition of Farmer Bros Company to
acquire Boyd Coffee Company is to increase its presence in the industry. Increase in its presence
is an expansion strategy which equals to increase in revenues for Farmer Bros. Creating a leading
strong brand in mergers and acquisition is a way to increase the shareholders’ dividends through
profits. It was also stated in the financial statement that the need for mergers and acquisition is
because the leading brand had started expanding too (Reiter, Shishler and Prichard 65). The deal
announcement was made in the annual general meeting (AGM) and is sent to every shareholders
through the annual statements of finance. The financial press is also a good platform for
announcing the deal. Eliminating of a competitor is another reason why the company acquired
the coffee roaster as it had a lot of stores (Dreher, Maximilian, and Dietmar Ernst 24.).
2. Reasons stated in financial press.
The reasons given for mergers and acquisition in this M&A transaction is the need to have a
sharpening focus on business and creation of synergy between the coffee roasting business and
the seller. Farmers Bros Company is the seller while Boyd company is a roasting company.
Another reason given is growth, as food and beverage industry is highly competitive and requires
a lot of growth (Dreher, Maximilian, and Dietmar Ernst. 87). Additionally, increase in supply
chain pricing power through eliminating the levels of costs. It lowers the cost of distribution and
purchase of coffee beans.
C. STRATEGY