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Cott Corp to buy DSS Group for $1.25 bln

Cott Corp. has agreed to buy DSS Group, parent company of DS Services, which is backed by Crestview Partners. The price of the transaction is about $1.25 billion. Credit Suisse provided financial advice to Cott on the deal while Barclays was financial advisor to DSS. Headquartered in Atlanta, DS Services is a provider of bottled water, office coffee and water filtration services. The deal is expected to close by the end of January 2015.

PRESS RELEASE

TORONTO, ON and TAMPA, FL–(Marketwired – Nov 6, 2014) – Cott Corporation (NYSE: COT) (TSX: BCB) today announced that it has entered into a definitive merger agreement to acquire DSS Group, Inc., parent company to DS Services of America, Inc. (“DSS”), a leading water and coffee direct-to-consumer services provider in the United States, for approximately $1.25 billion, or approximately 7.1x 2014E adjusted DSS EBITDA, including the assumption of debt and the issuance of preferred shares to Crestview Partners and other selling shareholders.

The acquisition will extend Cott’s beverage portfolio into new and growing markets, including water and coffee home and office delivery services, water filtration services, and retail services, while creating cost synergies as well as portfolio expansion. In addition, the acquisition is expected to broaden the distribution platform of Cott by adding a national direct-to-consumer distribution channel with the 2,100 customer routes operated by DSS. Upon closing the transaction, Cott will have pro forma net sales and adjusted EBITDA of approximately $3 billion and over $350 million, respectively, for the twelve months ended September 27, 2014.

COMPELLING STRATEGIC RATIONALE
The acquisition of DSS will accelerate Cott’s acquisition based diversification outside of carbonated soft drinks and shelf stable juices, and is in line with Cott’s strategy of focusing on higher margin growth oriented businesses in beverage and beverage adjacencies. The acquisition gives Cott a complementary beverage platform for growth while diversifying Cott’s channel mix beyond large format retail and supermarket stores. The acquisition is expected to:

Improve top-line growth
Enhance overall gross profit and EBITDA margins
Provide significant diversification across product categories, packaging formats and raw material purchases
Offer a new direct route to market that will improve channel mix beyond large format retail and supermarket stores
Reduce customer concentration
Provide cost and revenue synergies of approximately $25 million per year by the end of 2017

Jerry Fowden, Cott’s Chief Executive Officer, commented: “The DSS acquisition substantially accelerates our diversification strategy, bringing a strong home and office water and coffee beverage platform and direct-to-customer delivery network into our portfolio. DSS is a market leader in the growing water and coffee services industries. It has established a scaled national direct-to-customer network and is led by an experienced senior management team. This acquisition meets all of the criteria established within our disciplined acquisition guidelines, including acquiring businesses within growing categories and with higher margins while enhancing product, package and channel diversification. Following this acquisition, Cott will have a more growth oriented, higher margin business and a more balanced revenue and earnings base.”

FINANCIAL HIGHLIGHTS
The acquisition is expected to be accretive to adjusted free cash flow per share in the first year (inclusive of the preferred shares on an unconverted basis). Cott also expects to realize revenue growth opportunities within DSS based on Cott’s expanded product portfolio and access to new channels. The year three post synergy adjusted EBITDA multiple is expected to be below 6x with a double digit cash on cash IRR.

The acquisition fits within Cott’s disciplined acquisition strategy, and is expected to enhance the Company’s overall margin profile. Pro forma for the transaction, gross profit and adjusted EBITDA margins for the twelve months ended September 27, 2014 are 27% and 12%, respectively, compared to 12% and 9%, respectively, on a standalone basis. Additionally, DSS’s history of strong cash flow is aligned with the balance of Cott’s core business portfolio.

Jerry Fowden noted, “This is a transformative milestone for Cott. DSS will assist our continued efforts to migrate from a primarily CSD and shelf stable juice beverage business to a diversified beverage provider with a strong platform on which to grow. We believe this acquisition will provide us with the resources and scale necessary to drive our future success and build shareholder value.”

Cott has received committed financing from Barclays and Credit Suisse to support the transaction. The acquisition is ultimately expected to be funded with a combination of a new bond issuance, borrowings under Cott’s ABL facility, and convertible and non-convertible preferred shares issued to the current equity owners of DSS. Cott will seek to increase its existing ABL facility to $400 million in connection with the acquisition. Cott additionally intends to assume the obligations under DSS’s existing bonds. As of December 31, 2014, pro forma for the acquisition and excluding the issuance of the preferred shares, Cott would have net leverage of approximately 4.5x net debt/adjusted EBITDA.

The acquisition, which is expected to close by the end of January 2015, is subject to certain closing conditions, including the requisite consent of DSS bondholders and regulatory approvals, but is not subject to any financing condition. In connection with the transaction, Cott intends to continue with its quarterly dividend but will suspend its share repurchase program.

Upon completion of the acquisition, DSS will operate as a subsidiary of Cott, based in Atlanta, Georgia. DSS will continue to be led by Tom Harrington, DSS’s current CEO and President, as well as the company’s present leadership team.

“Tom Harrington and his talented management team have done a great job building DSS. We are delighted that they will continue to lead the company going forward as we work together to drive future growth,” added Jerry Fowden.
Tom Harrington, CEO and President of DSS noted, “We firmly believe that bringing DSS into the Cott family will provide additional opportunities for the benefit of our employees and customers alike. Our leadership team is excited to work with Cott to drive growth, while creating cost synergies as well as portfolio expansion.”

Credit Suisse acted as financial advisor to Cott on the DSS transaction. Drinker Biddle & Reath LLP acted as legal advisor.
Barclays acted as financial advisor to DSS on the transaction. Paul, Weiss, Rifkind, Wharton & Garrison LLP acted as legal advisor.

ABOUT COTT CORPORATION
Cott is one of the world’s largest producers of beverages on behalf of retailers, brand owners and distributors. Cott produces multiple types of beverages in a variety of packaging formats and sizes, including carbonated soft drinks, 100% shelf stable juice and juice-based products, clear, still and sparkling flavored waters, energy drinks and shots, sports drinks, new age beverages, ready-to-drink teas, beverage concentrates, liquid enhancers, freezables and ready-to-drink alcoholic beverages, as well as hot chocolate, coffee, malt drinks, creamers/whiteners and cereals. Cott’s large manufacturing footprint, substantial research and development capability and high-level of quality and customer service enables Cott to offer its customers a strong value-added proposition of low cost, high quality products. With over 4,000 employees, Cott operates manufacturing facilities in the United States, Canada, the United Kingdom and Mexico. Cott also develops and manufactures beverage concentrates which it exports to approximately 50 countries around the world.

ABOUT DS SERVICES
DS Services is a national direct-to-consumer provider of bottled water, office coffee and water filtration services. DS Services offers a comprehensive portfolio of beverage products, equipment and supplies to approximately 1.5 million customers through its network of over 210 sales and distribution facilities and daily operation of over 2,100 routes. With one of the broadest distribution networks in the country, DS Services can provide service to approximately 90 percent of U.S. households and efficiently services homes and national, regional and local offices. DS Services is dedicated to achieving its mission of becoming America’s favorite water, coffee and tea service provider where consumers live, work and play. Please visit our website www.water.com for more information about DS Services.

ABOUT CRESTVIEW PARTNERS
Founded in 2004, Crestview Partners is a value-oriented private equity firm focused on the middle market. The firm is based in New York and has approximately $6 billion of assets under management. The firm is led by a group of partners who have complementary experience and distinguished backgrounds in private equity, finance, operations and management. Crestview has senior investment professionals focused on sourcing and managing investments in each of the media, energy, financial services and healthcare industries. For more information, visit www.crestview.com.