Making the case for a successful merger of dairy companies

The situation

Two fully integrated dairy companies with presence across the GCC were positioned a distant second and third place vis-à-vis the market leader. While the revenues and profitability of both companies were decreasing, the leader was gaining market share and still achieving efficiencies. The two dairy companies were considering a merger and tapped Strategy& to assess its overall attractiveness, identify the potential costs and top-line synergies and assign values, then put together the business case for the merger.

How we helped

The Strategy& team began with an assessment of the financial, operational, and market performance of each company, as well as their capabilities and mutual compatibility. We determined the value of cost synergies across all key areas, including farming, manufacturing, sales and marketing, supply chain, employees, and corporate. Similarly, we valued top-line synergies of the merger, such as opportunities for increasing reach and sales, and better coordination of prices and promotion. We prioritized the synergies, highlighting the “low-hanging fruits”; stipulated the investments required to realize the synergies; and enumerated the key risks of the deal.

Results

Our estimated cost synergies amounted to roughly SAR200 million, representing 5 percent of total revenues. Our estimated top-line synergies amounted to roughly SAR400 million, representing 10 percent of total revenues. Both companies’ board of directors endorsed the business case and approved the deal.