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The acquisition of Royal Agio Cigars has taken a lot of work and dedication from both parties. With the process completed, its business is bringing extra commercial, financial and innovative firepower to Scandinavian Tobacco Group.

When it comes to acquisitions in the cigar business, one’s reputation as an acquirer is a considerable asset in negotiations.

Many of the companies are family-owned and hence particularly concerned about their legacy and what an acquisition will mean for their brands and their employees. Having made acquisitions and successfully integrated them, Scandinavian Tobacco Group has a good track record of respecting the culture and achievements of the acquired company and acting fairly – both towards employees in the acquired company and for those Scandinavian Tobacco Group employees that end up being affected.

This was particularly helpful in its biggest ever acquisition; the one of Royal Agio Cigars in a deal with a transaction value of EUR 210 million, which is a significant step towards the vision of becoming the undisputed global leader in cigars and pipe tobacco.

“Acquisitions are a fundamental part of our company strategy and how we grow our business. Many of our competitors, and hence acquisition targets, are family owned with a long history. These companies are naturally concerned about their employees, so we have a certain focus on making sellers feel comfortable with us,” says Scandinavian Tobacco Group CEO Niels Frederiksen.

“You can’t underestimate the trust they are trying to find in the buyer. They know that creating synergies is part of our plan, and we explain that there’s uncertainty on both sides and that we treat everyone fairly. If there are redundancies, we look after people. We can’t give guarantees, but we can show what we’ve done in the past.”

Complementary businesses

Royal Agio Cigars is a well-run company with a long family history, culture and passion for cigars. Its brands and geographical strengths – in the Netherlands, France, Germany, Spain and Italy – are complementary to Scandinavian Tobacco Group.

The addition of Royal Agio Cigars is a major step forward for Scandinavian Tobacco Group, creating an even larger company with the size required to grow further, the tobacco know-how to innovate and the brand portfolio to serve consumers with the industry’s best smoking experiences.

Scandinavian Tobacco Group’s track record shows sellers and investors that it is a serious negotiating partner. The business is used to integrating acquisitions, such as last year’s purchase of Thompson and Co. of Tampa, which is now making a valuable contribution as an integrated part of Scandinavian Tobacco Group.

Although the two companies knew each other from competing in the same markets, there were still plenty of new things for the two sides to find out about each other. Jakob Berning, Senior Vice President Tax, Treasury and M&A, notes how all the financial updates from Agio confirmed the company’s strength.

“Agio has been performing well for many years – they have been a very strong competitor and have been outperforming in certain areas,” Berning says. “We were curious to learn from them when we started the process, and it was interesting to hear their views on parts of the industry.”

Finding a balance

On closing, integration planning started immediately, following the principle of merging the best from the two companies in creating one new Scandinavian Tobacco Group. Investigating which parts of the two entities are the strongest provides the best starting point to move forward as one company.

“It’s been an amazing effort, working long hours and also over weekends, on top of what are already busy jobs,” Berning says.

Synergies are an important part of any transaction in the tobacco industry, but combining at a commercial level creates the most value, provided the businesses are safeguarded in the process. The aim is that the combined business should be at least the same, and preferably stronger, than when they operated separately.

“Any acquisition is a learning process. There are so many negotiations across so many variables and it’s an interesting exercise to put together the right team of internal and external people. Sometimes ideas come from somewhere unexpected, and provide the big breakthrough,” Frederiksen says.

“Now we have completed the acquisition, our focus is very much on the integration. This is in many ways the most important part of the process – we have to get it right and reinforce our track record of creating value through acquisitions.”

Royal Agio Cigars

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