AB InBev a High Quality Franchise That Will Unlock Value by Deleveraging

Anheuser-Busch InBev, or AB InBev, has been acquisitive, having made transformative deals for Interbrew and Anheuser-Busch, and more recently acquiring Grupo Modelo, Oriental Brewery, and SABMiller. Management's strategy is to buy brands with a promising growth platform, expand distribution, and ruthlessly squeeze costs from the business. The payback period for the SABMiller deal has been much longer than usual, however, despite management executing well on costs. Since the deal, one road bump after another has caused EBITDA growth to slow; from craft beer in the U.S. to slowing demand in South Africa to the shutdown of the on-trade during the coronavirus, and net debt/EBITDA stood at 4.6 times at the end of 2021. We expect the merger and acquisition, M&A, playbook to be on hold for a year or two more until AB InBev deleverages its balance sheet.