---
title: "Nestlé's M&A Revelations"
description: "Drawing from Nestlé's history, this article delves into how the multinational group achieved rapid growth and scale changes through mergers and acquisitions. Nestlé's M&A principles offer valuable lessons for other entrepreneurs."
author: "李进"
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published: "2018-12-17"
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# Nestlé's M&A Revelations

> Drawing from Nestlé's history, this article delves into how the multinational group achieved rapid growth and scale changes through mergers and acquisitions. Nestlé's M&A principles offer valuable lessons for other entrepreneurs.

Source: Dongsi Shitiao Capital (ID: DsstCapital)
Drawing from Nestlé's history, this article delves into how the multinational group achieved rapid growth and scale changes through mergers and acquisitions. Nestlé's M&A principles offer valuable lessons for other entrepreneurs.

**Successful M&A makes 1+1 > 2**
Since the new century, benefiting from the continuous development and opening of China's food industry, internationally renowned food companies have entered China one after another, attracted by the market's potential. A typical approach is to acquire domestic food companies to capture the Chinese market, with targets being well-known, high-market-share enterprises. Examples include Swiss Nestlé acquiring Yinlu, American Hershey acquiring Golden Monkey, and American Yum! Brands acquiring Little Sheep.
Successful M&A achieves a "1+1>2" effect, but there are also cases where M&A backfires. Problems such as foreign companies' maladjustment, management conflicts, and poor communication with distributors have surfaced, leading some foreign investors to retreat. In this context, 2018 saw a wave of national brands returning. Hershey sold Golden Monkey to a buyout fund initiated by Tibet Cangying Investment, Yingtou Holdings bought back Robust from French Danone, and CDH Fund bought Nanfu from Procter & Gamble.
Failed M&A deals have their own issues, but commonalities exist: M&A concepts remain at a crude stage, with motivations often being market or resource grabs rather than financial synergy, lacking meticulous integration and absorption. Most companies fail to focus on substantive integration.
So what constitutes successful M&A? Are there secrets to M&A in the food industry? Perhaps we can learn from the M&A history of Nestlé, a global food giant.

**Nestlé's M&A Secrets**
> **I. Nestlé: A Century-Old Company**
Nestlé, founded by Henri Nestlé in 1867, is headquartered in Vevey on the shores of Lake Geneva, Switzerland. It now has over 500 factories in more than 20 countries, including the US, Japan, and Germany, and boasts over 2,000 global or regional brands, making it a leading international comprehensive food group.
From Nestlé's product portfolio, it's clear that its products have permeated the daily lives of many people worldwide.
In 2017, Nestlé's sales reached CHF 89.8 billion, with net profit of CHF 14.7 billion. About 95% of sales come from food, making Nestlé the world's largest food manufacturer and one of the largest multinationals. 98% of sales come from outside Switzerland, earning it the title "most international multinational group." In 2017, among the world's top 500 most profitable companies, Nestlé was the only food company listed. By sales, Nestlé has 13 brands with sales exceeding $1 billion.

> **II. M&A Built the Nestlé Empire**
Looking back at Nestlé's development trajectory, it reads like a corporate M&A history. More than half of its well-known brands were acquired through mergers and acquisitions, with M&A deeply ingrained in its DNA.
We can divide Nestlé's history into four stages: initial development, rapid growth, maturity, and stability. In the initial stage, it started with infant food and expanded rapidly through mergers of equals. In the rapid growth stage, it broadened product lines and accelerated global expansion. In the maturity stage, it diversified into pharmaceuticals and cosmetics. In the stability stage, it focused on emerging markets, refining value chains and filling gaps.

**1. Initial Development (1867–early 20th century)**
Nestlé started with infant food in 1867 and merged with its competitor Anglo-Swiss Condensed Milk Company in 1905. At that time, the combined company had over 20 factories and had begun establishing sales networks across Africa, Asia, Latin America, and Australia via overseas subsidiaries. World War I increased demand for condensed milk and chocolate, and Nestlé seized the opportunity to expand production, acquiring processing plants in the US and Australia. By the war's end, it had 40 factories. During this period, Nestlé launched products like chocolate, unsweetened condensed milk, sterilized milk, and milk powder.

**2. Rapid Growth (early 20th century–1973)**
Through M&A, the company quickly became a monopoly, achieving economies of scale and reducing transaction costs. It also adapted to the times and technological changes, launching multiple products to meet consumer needs and quickly capture markets. Between the World Wars, demand for canned milk from the military and individuals declined, so the company professionalized its workforce and strengthened R&D, introducing innovative products like Nescafé, whole milk powder, chocolate malt drinks, and white chocolate. After WWII, the company supplied products to civilians and the military. Post-war economic prosperity and rising demand for convenience foods led the company to acquire seasoning, canned food, and yogurt producers, expanding its product range. This period saw the launch of chocolate drinks, instant foods, rice flour, and dumplings.

**3. Maturity (1974–1990s)**
From the 1970s, besides expanding global market share of existing products through acquisitions, the company diversified into pharmaceuticals and cosmetics.

**4. Stability (1990s–present)**
In the 1990s, Nestlé turned its attention to emerging markets in Asia. Starting with the acquisition of Shanghai Fule Food (an ice cream producer) in 1997, it continuously acquired Chinese niche leaders such as Totole, Xiamen Yinlu, and Hsu Fu Chi, leveraging local businesses to capture Chinese market share. After acquisitions, Nestlé emphasizes localization, retaining the acquired company's organizational structure and treating managers with care, ensuring stable development. For example, after acquiring Yinlu, management and business models remained unchanged, alleviating concerns among Yinlu's management and staff and skillfully avoiding the common "maladjustment" foreign investors face with national brands.

> **III. The Secrets of Nestlé's M&A**
To this day, Nestlé's board sets its development strategy as: 2/3 through M&A, 1/3 through internal growth. With an average of one acquisition per month and excellent post-merger integration, Nestlé has built an empire of 2,000 consumer goods brands. So what are the secrets?

**1. Clear M&A Strategy**
Strategy remains the primary factor for M&A success. During its aggressive acquisition period, Nestlé adhered to four key strategic principles: (1) No hostile takeovers; acquisitions are voluntary. (2) Combine its competitive advantages with the target to help it grow. (3) Avoid blind acquisitions; stay within a framework of related diversification. (4) Prefer companies that are financially healthy, have technological innovation, brand image, and recognized management methods.
This shows Nestlé's M&A strategy is very prudent, laying the foundation for its success.

**2. Target Selection: Acquiring Well-Managed Brands**
Nestlé prefers to acquire brands that are already well-managed. By leveraging channel reuse and procurement sharing, Nestlé can significantly enhance the competitiveness of acquired brands without drastic changes.
For Nestlé, M&A is not about providing timely help but adding brilliance to existing splendor, achieving a win-win. Of course, this M&A model is based on Nestlé's existing resources, and its strong resource integration capability ensures replicability and success. Not all companies can adopt this model.

**3. Post-M&A Management: "Centralized-Decentralized" Model**
To manage 2,000 brands, Nestlé employs a highly flexible organizational structure and management model—a "centralized-decentralized" approach.
"Centralized" means the Swiss headquarters decides major strategic decisions and basic policies, while "decentralized" means regional markets have significant autonomy in execution, especially in marketing and service innovation.
Nestlé's corporate values commit to "respecting diverse cultures and traditions," allowing acquired companies considerable autonomy. This has enabled most acquired brands to continue smoothly and even expand their development paths.
Headquarters' authority is limited to: setting long-term strategy and major investments; optimizing factory and supply chain management across regions; managing brand strategy; establishing policies and rules for production, quality, and safety systems; cultivating management talent; driving innovation top-down through R&D and encouraging local innovation; and providing technical and knowledge support to regional factories and institutions.
Based on consensus on values and long-term strategy, Nestlé headquarters minimizes interference in local companies. It sets principles and rules and ensures group compliance. However, in response to complex local market conditions, regional subsidiaries have the authority to react directly to consumer tastes and eating habits.
So even though Yinlu peanut milk is under Nestlé, what we drink today is still authentic Yinlu with its own characteristics.

**Lessons for Food Industry M&A**
In summary, Nestlé's M&A success is based on a prudent model confirmed by its existing resources. M&A is just a means; it acquires companies with established brands and models, then leverages channels, R&D, and other resources while maintaining the original management and corporate culture to achieve further growth. It does not blindly change personnel, models, or culture. This is worth deep reflection and emulation.
Taking the Chinese market as an example, few foreign acquisitions of Chinese national brands have achieved Nestlé's success; most have faded after initial fanfare.
Besides Golden Monkey and Robust mentioned earlier, there are also Maxam (acquired by S.C. Johnson in 1990, bought back by Shanghai Jahwa in 1994), Beibingyang (joint venture with Pepsi in 1994, trademark reclaimed by Yiqing Holdings in 2007), and Ding Jiayi (acquired by Coty for $400 million in 2011, bought back by the founder in 2015). Too many national brands failed to sustain glory after foreign acquisition and were resold.
Golden Monkey, a leading candy company, is typical. After being acquired by Hershey at a high price in 2014, sales declined, and issues like distributor friction and employee lawsuits plagued Hershey.
Forcibly imposing management and culture after M&A has proven unsuccessful in China's food industry.
It's worth noting that during this wave of national brand returns, benefiting from the opening and development of China's capital markets, Chinese industrial buyout funds have begun to play an increasingly important role. The emergence of such funds may drive M&A to greater depths, and funds with broader vision and more diverse resources may help scarred Chinese national brands regain glory.
For example, Golden Monkey was reportedly bought back from Hershey by Henan Yuxiang Food Company, which is 100% owned by Zhengzhou Xiangying Venture Capital Fund, with Tibet Cangying Venture Capital Management Co., Ltd. as the operator behind it. The MBO model combined with leveraged buyouts, using junk bonds and mezzanine financing to boost investment scale and returns, was popular on Wall Street in the 1990s but is rare in China.
From the operational philosophy of large foreign buyout funds, compared to general industry operators, they may align more closely with Nestlé's M&A philosophy: based on corporate governance, respecting acquired company management, providing capital and resources to help them grow in a standardized way, and using securitization tools to achieve scale changes in the future.
Mr. Li Jin holds a master's degree in law from China University of Political Science and Law and is qualified as a lawyer and sponsor representative. He previously worked in the investment banking departments of Huatai United Securities and China Securities Co., Ltd., handling multiple IPO and M&A projects, and completed investments in Golden Monkey Food, Yuanhai Tourism, and Yixiang Ice and Snow. He has extensive experience in investment operations and management internal control.

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