No, a Coke deal today is just as likely to deliver research funding and royalty payments to a developer of novel flavors, which is exactly what a two-year-old Coke deal does to Chromocell Corp., in exchange for exclusive rights to the developer's sweetest concoctions. Or it might align the world's leading beverage maker with the Bill and Melinda Gates Foundation to bring fruit farmers in Uganda into the Coca-Cola supply chain. Coke's recent transactions even include a partnership with H.J. Heinz Co. that lends Coca-Cola's fully recyclable Plantbottle technology to the ketchup maker for the packaging of Heinz's flagship product.
"We've expanded our approach to anything that allows us to accelerate our business growth," said Marie Quintero-Johnson (pictured), the Coca-Cola vice president who for the past decade has served as director of mergers and acquisitions. It's an approach that not only accommodates all sorts of deal structures -- everything from licensing to step acquisitions to joint ownership with bottling partners, in addition to traditional M&A -- but also accounts for Coca-Cola's return as a winner of The Deal magazine's 2012 Most Admired Corporate Dealmakers award in consumer staples.
As in 2010, when Coke last won the MACD award, respondents to the 2012 survey praised the company for its reputation as a dealmaker, its use of M&A to complement long-term strategy and its history of quality deals. The quantity is impressive, too. Between 2007 and 2011, Coke completed 77 deals, a number easily double that of its nearest competitor in the consumer-staples category. And the volume generated by those Coke transactions for which terms have been disclosed -- 38 deals out of 77 -- totaled $25.2 billion.
Coke's dealmaking is also noteworthy for taking the company into new sectors. This explains many of the exotic deal structures recently added to the company's M&A repertoire. Or, as Quintero-Johnson put it, "Instead of a transaction driving the endgame, the operating objective drives the endgame. And the transaction itself is merely a facilitator."
That wasn't the case in the 1990s, when virtually all Coke dealmaking had to do with strengthening the bottling system. M&A was mostly asset trading that decade, and its practitioners were mostly masters of Microsoft Excel. Then, in 1999, Coca-Cola declared itself not just a soda-pop purveyor but a total beverage company. While the declaration expanded Coke's M&A mandate to include still beverages (specifically, beverage brands without carbonation), it left the company's deal structures relatively unchanged. "Even then," Quintero-Johnson said, "we had a two-dimensional way of doing things, an all-or-nothing perspective where we either owned everything or sold everything."
The mandate changed again around 2010 when, in addition to bottling and brand transactions, Coke's 20-member M&A team assumed responsibility for procuring assets capable of adding support anywhere in the supply chain. This change dramatically broadened the company's target spectrum by increasing collaboration between the M&A team and all areas of the business in a companywide quest to identify opportunities. Coke's M&A team began examining hundreds of possible transactions a year, ultimately closing on 15 to 30 of them. And while Quintero-Johnson said these annual numbers remain fairly constant, the range of dealmaking now extends "all the way from agriculture to that last moment of truth with the consumer."
The 2010 mandate change also ended Coke's one-size-fits-all approach to dealmaking. That is, rather than buy or sell an asset outright, Quintero-Johnson's team began customizing deals with a view toward motivating each new partner to leverage the Coke brand in sectors as diverse as refrigeration technology and music licensing. A consequence of this customization is that of the nine deals completed by Coke in 2011, five left a portion of the equity with the seller. Meanwhile, for the full five years, 24 deals of the 77 total were something other than outright purchases.
In music licensing, for instance, a Coke marketing team embarked on a partnership last year with Music Dealers LLC to source artists, lyrics and music for advertising campaigns. An early brief submitted by Coke called for Music Dealers -- a four-year-old Chicago startup already in possession of the world's largest catalog of pre-cleared music -- to identify a song with teen appeal to serve as the soundtrack for "Coca-Cola Music," a marketing program subsequently rolled out in 140 countries. Music Dealers immediately crowd-sourced 22 songs that fit Coke's brief and, within 24 hours, designated "Can You Feel It" the most appropriate. The global commercial featuring "Can You Feel It" has since aired in 60 countries and generated enough publicity for the Swedish band that wrote it, You Say France & I Whistle, to start a record label.
The band wasn't the only winner. In addition to revenue, Music Dealers gained enviable awareness from Coke's massive scale and marketing leverage; Coke benefited from Music Dealers' insider industry knowledge and, as part of the collaboration structured by Quintero-Johnson's team, from warrants designed to give Coke an equity interest in its new musical partner. "It was a way for us and them to bring the best of our assets to the table -- for us, global reach; for them, expertise in sourcing music," Quintero-Johnson said.
That Coke's dealmaking team continues to push the envelope is evident in recent speculation of a $10 million investment in Spotify Ltd. Although Coke declined to comment on the rumor, it's no secret the company entered into a strategic partnership with Spotify in April. The agreement is based on what Coke has termed a "shared value" approach to partnerships. A shift from traditional transactional relationships, the deal embeds Spotify as the underlying technology for the Coca-Cola Music program, integrating the digital music service into Coca-Cola's Facebook presence, which in turn exposes the service to an additional audience of 50 million Coke fans.
Whether or not Coke actually buys into Spotify, thereby joining Accel Partners, DST Global and Kleiner Perkins Caufield & Byers as investors, such David-and-Goliath pairings are already a corporate specialty. The Atlanta-based giant, well aware that a third of beverage-market growth occurs in categories that barely existed five years earlier, has even formalized a way to nurture brands too small for its large-scale system. The operating unit tasked with this responsibility -- Venturing and Emerging Brands, or VEB -- not only scours the North American landscape for upstart brands with high-growth potential but enlists Coke's M&A team to negotiate mutually beneficial investments in them. And though these generally begin with Coke as a minority partner, they often lead to complete ownership once a VEB-sponsored brand consistently meets outsized sales goals.
One such investment, in Zico Beverages LLC, began as a minority stake in 2009 for less than $15 million and increased to a majority position in April after Coke made a second investment for an undisclosed amount. The eight-year-old company's brand, Zico Pure Premium Coconut Water, is in a category that has doubled in revenue each year since 2005. Zico itself, meanwhile, grew sales five-fold in 2011. "They saw the emergence of coconut water as a consumer need state, to use Coke-speak," Quintero-Johnson said of her colleagues at VEB. "It's all part of their spectacular expertise in monitoring consumer preferences and anticipating where they're going."
So when The Wall Street Journal ran a story in February with the headline "The Beverage Wars Move to Coconut," Coca-Cola was already there. Other next-generation brands uncovered and underwritten by the company's half-decade-old VEB unit, in conjunction with Quintero-Johnson's M&A team, include: Honest Tea, already the country's top-selling organic bottled tea company; illy issimo, a ready-to-drink coffee originating in Italy but retooled for American tastes; and Kvass, a nonalcoholic fermented beverage hauled to these shores from Russia.
This isn't to suggest that Coke no longer thirsts for big deals. Although it's unlikely any will ever top its 2010 purchase of Coca-Cola Enterprises Inc.'s North American bottling business for $12 billion, the company has time and again demonstrated a willingness to spend big in the right place with the right partner. Consider, as an example, last year's acquisition of half of Aujan Industries Co. LLC for $980 million. Coke's deal with the Saudi Arabian still beverage maker -- billed as the largest-ever investment by a multinational in the Middle East's consumer goods sector -- firmly positioned the industry's global leader in one of few regions where it didn't lead.
"It really was a win-win," Quintero-Johnson said. "The partnership gave us a footprint for our juice space in the Middle East that let's us leverage their local-market knowledge with our marketing, distribution and brand-building expertise." However, before getting down to the fine strokes of dealmaking, Coke cultivated what its M&A director calls "an outstanding relationship" with the Aujan family, which had been trading beverages, rice and tobacco in Middle Eastern territories for more than a century. "The deal took a year and a half," Quintero-Johnson said, "but it was an every day year and a half."
Future deals could be even tougher to consummate. Five years ago, when chasing M&A opportunities around the globe, Coke's M&A team commonly bumped into its counterpart at PepsiCo Inc. and representatives of private equity. It still does, although the competition for beverage deals today is equally likely to hail from China or Japan. And, given the industry's low barriers to entry, the competition for customers never ceases. "Think of Brazil," Quintero-Johnson said. "You take a coconut from a tree, lop its top off and put a straw in it. You're in the beverage business."
That every country has its equivalent of a Brazilian coconut is enough to keep Coke's M&A team on its toes. Throw in the fact that more than 330 new beverage brands are launched each year -- any one of which could eventually join Coke's or a competitor's roster of billion-dollar brands -- and the importance of M&A to the industry and its leading participant is self-evident. "We really need to stay close to our local operations, because they're the ones on the streets every day, seeing what's coming in and determining what the possibilities are," Quintero-Johnson said. "But we also need a laser-focus prioritization process. Otherwise, we'd be all over the place."
Todd P. Kelly joined the Dallas Office of Jones Day as a partner in the healthcare and life sciences practice. For other updates launch today's Movers & shakers slideshow.
The Jordan Co. managing director talks about manufacturing M&A with private equity senior editor Jonathan Marino. More video