A DISCIPLINED AND FOCUSED APPROACH TO M&A

The completion of Scandinavian Tobacco Group’s acquisition of Agio Cigars in 2020 was far from the start of the process. Or its end.

Agio Cigars, the largest acquisition in Scandinavian Tobacco Group’s history, had been on the radar screen for several years. Its business had been screened for how it could create value if acquired, including synergies, creating scale and a strong portfolio that was complementary to the Group’s. When the conditions and price were right, the deal was completed, paving the way for the equally critical process of integration.

Bringing all these elements together into a single, best-practice playbook is a key element in Scandinavian Tobacco Group’s ambition to be the best acquirer and integratory in the industry. The M&A Playbook defines guidelines around future acquisitions and help ensure these create the maximum value for the company.

“We want to be more disciplined and focused in how we do M&A and the Playbook is a way of helping us to become the best integrator in the industry. To create best value for shareholders, we should follow structured processes and adding analytical and strategic perspectives and learnings from previous acquisitions as we go,” says Yulia Lyusina, SVP Strategy and Transformation.

Improving all the time

Scandinavian Tobacco Group aims to be the undisputed global leader in cigars and has a proven track record in M&A. Most recently, the 2018 acquisition of Thompson Cigar for USD 62 million strengthened the Group’s position in the US online channel and created significant synergies and value.

The acquisition of Agio Cigars, for €210 million, brought a good geographic fit, complementary brands and enabled utilisation of excess capacity. It was a major acquisition that brought significant cost savings and allowed us to enhance our capabilities in machine-rolled cigars. Both deals created an approximate return on invested capital of 20%.

With this proven M&A strategy, Scandinavian Tobacco Group has both the capacity and appetite for further acquisitions and there are further opportunities. The M&A Playbook now sets out a structured and disciplined approach from strategic screening through negotiations and deal execution to integration planning and implementation.

“We’ve worked hard to align on the objectives and criteria for why we want to do M&A in our three commercial divisions and in which categories. We are clarifying objectives and defining strategic criteria for our target companies – essentially, defining which companies we should go for and why. Our aim is to create value that surpasses value of individual companies and integrate in the best way with respect to people, culture and unique capabilities” says Laurie Ræbild, Director Group Projects’ Portfolio Management Office.

End to end thinking

One thing the Playbook does not set out is timing or frequency of acquisitions – rather, these need to be the right target and at the right time. Agio Cigars, for example, was on the radar screen for years before the acquisition actually took place.

“The acquisition and integration of Agio Cigars has been very successful but looking back we can see where we need to improve for next time,” says Lyusina. “With this Playbook we now have a detailed plan of how to run acquisitions, with four basic sections and depth and details that can be adapted according to the actual acquisition and the complexity.

“We often acquire strong brands and companies with deep and respected heritage, and it’s important for us to help protect this heritage and craftsmanship. Now it’s real end to end thinking and all under one must-win battle, from start to finish.”