Cott Corp (NYSE: COT) (TSX: BCB) has agreed to acquire Aquaterra Corp, a portfolio company of Canadian private equity firm Birch Hill Equity Partners. The deal is valued at $62 million and is expected to close in January 2016. Founded in 1882 as Laurentian Water Co, Aquaterra delivers water, coffee and other kitchen supplies directly to homes and offices. Cott, a Toronto-based beverage producer, said the acquisition gives it a national direct-to-consumer route distribution fleet in Canada with about 70,000 customers. Aquaterra entered Birch Hill’s portfolio in 2006 when the investor bought Danone Waters of Canada and renamed it Aquaterra. The company has since completed two acquisitions.
Cott Announces Plans to Expand Home and Office Bottled Water Delivery Through the Acquisition of Canada’s Largest Home and Office Water Delivery Business
TORONTO, ON and TAMPA, FL–(Marketwired – Dec 8, 2015) – Cott Corporation (NYSE: COT) (TSX: BCB) today announced that it has entered into a definitive share purchase agreement to acquire Aquaterra, Canada’s oldest and largest direct-to-consumer home and office water delivery business delivering water and coffee to homes and offices. The acquisition price is approximately $47 million (C$62 million), or 0.8x revenue for the twelve months ending June 30, 2015.
The acquisition is consistent with Cott’s stated strategy of extending its beverage portfolio into higher margin categories with low customer concentration. Aquaterra provides home and office delivery of water and coffee as well as water filtration services through well-known and respected Canadian brands such as Canadian Springs and Labrador Springs. The acquisition broadens the distribution platform of Cott’s existing Canadian business by adding a national direct-to-consumer route distribution fleet in Canada with approximately 70,000 customers.
COMPELLING STRATEGIC RATIONALE
The acquisition of Aquaterra continues Cott’s diversification outside of carbonated soft drinks, shelf stable juices and large format retail, and is in line with Cott’s stated five point strategy of focusing on higher margin businesses in beverage and beverage adjacencies. The acquisition is expected to:
Continue Cott’s shift to higher gross profit and EBITDA margin categories;
Provide a second geographical area in which targeted highly accretive tuck-in acquisitions can be completed;
Improve channel mix outside of large format retail and supermarket stores via a new direct route to market;
Offer cross selling and vertical integration opportunities through utilization of many of DS Services’ established commercial partners and Cott’s facilities; and
Reduce customer concentration
Jerry Fowden, Cott’s Chief Executive Officer, commented, “The Aquaterra acquisition is another great step in our stated strategy to consolidate the higher margin home and office water delivery and coffee services categories where we believe our platform, operating strength and synergies can be leveraged.”
The combination is expected to be accretive to free cash flow in the first year and will be funded using Cott’s asset based lending facility. The year 3 post synergy adjusted EBITDA multiple is expected to be in the mid 5x range and the cash on cash IRR in the mid-teens. Once integration is complete, Cott expects growth from an expanded product portfolio, broader channel penetration and increased web based customer acquisition. Aquaterra’s financial performance will also be enhanced via a range of procurement and operational and SG&A synergies via leveraging Cott’s and DS Services’ existing operations in North America.
Tom Harrington, CEO of DS Services, commented, “We are very excited about expanding our business into the Canadian market and firmly believe that our established partnerships and home and office water and coffee delivery expertise will create an even stronger, growth and service oriented platform at Aquaterra. In addition, we expect to continue to capitalize on our expertise in the area of consolidating very fragmented home and office bottled water and coffee service markets.”
The acquisition, which is expected to close in January of 2016, is subject to certain customary closing conditions and additional financial information will be provided post-closing.
About Cott Corporation
Cott is one of the world’s largest producers of beverages on behalf of retailers, brand owners and distributors, and has one of the broadest home and office bottled water and office coffee services distribution networks in the United States, with the ability to service approximately 90 percent of U.S. households, as well as national, regional and local offices.
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, broad distribution network, 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 and services. In addition, Cott is a national direct-to-consumer provider of bottled water, office coffee and water filtration services offering a comprehensive portfolio of beverage products, equipment and supplies to approximately 1.5 million customer locations through its network of over 180 warehouse, branch and distribution facilities and daily operation of over 2,200 routes.
With over 9,000 employees, Cott operates approximately 60 manufacturing facilities and 180 distribution 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.
Safe Harbor Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 conveying management’s expectations as to the future based on plans, estimates and projections at the time Cott makes the statements. Forward-looking statements involve inherent risks and uncertainties and Cott cautions you that a number of important factors could cause actual results to differ materially from those contained in any such forward-looking statement. The forward-looking statements contained in this press release include, but are not limited to, statements related to the completion of the transaction on the terms proposed, the anticipated timing of the transaction, expected synergies and contribution to Cott’s performance, and the potential impact the acquisition will have on Cott and related matters. The forward-looking statements are based on assumptions regarding the time necessary to satisfy the conditions to the closing of the transaction and management’s current plans and estimates. Management believes these assumptions to be reasonable but there is no assurance that they will prove to be accurate.
Factors that could cause actual results to differ materially from those described in this press release include, among others: changes in expectations as to the closing of the transaction; changes in estimates of future earnings and cash flows; expected synergies and cost savings are not achieved or achieved at a slower pace than expected; integration problems, delays or other related costs; retention of customers and suppliers; the cost of capital necessary to finance the transaction; and unanticipated changes in laws, regulations, or other industry standards affecting the companies.
The foregoing list of factors is not exhaustive. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. Readers are urged to carefully review and consider the various disclosures, including but not limited to risk factors contained in Cott’s Annual Report on Form 10-K and its quarterly reports on Form 10-Q, as well as other filings with the securities commissions. Cott does not undertake to update or revise any of these statements in light of new information or future events, except as expressly required by applicable law.
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Photo courtesy of Aquaterra Corp