Seltzer hype: PE partners finance sparkling water brand

Waterloo Sparkling Water closes a deal with multiple investors, led by Flexis Capital, in an all-virtual format.

As consumer interest for sparkly drinks bubbles to the top, a bunch of PE investors have joined hands to back Waterloo Sparkling Water, of Austin, Texas, following an all-virtual process spanning about six months.

The Flexis Capital-led deal, which included JW Levin Management Partners, Eurazeo and Moore Strategic Ventures, closed on August 17 after the parties signed a letter of intent in April.

“We were introduced to this opportunity in February through a Texas relationship,” said Louis Friedman, managing partner of Flexis Capital.

Investor appetite in the seltzer market has increased as of late. This month, Sanzo, an Asian-inspired sparkling water brand, secured $1.3 million in seed funding.

More generally, retail sales of sparkling flavored water grew to $2.45 billion in 12 months, according to August 2019 Nielsen all-channel sales data.

Shares of National Beverage Corp, maker of the popular La Croix flavored seltzer brand, have surged by over 35 percent year-to-date.

The sparkling water market is laboriously encroaching on the carbonated soft drinks space, though it’s still small compared to the latter, which reported $26.74 billion in sales during the same period.

Flexis Capital, which invests on a deal-by-deal basis, roped in JW Levin from the get-go in what was going to be a partial purchase of the brand.

“Before we were going to purchase a minority interest; [now] we are recapitalizing everyone’s stake and purchasing most of the venture capitalist’s stake,” Friedman said, referring to CAVU Venture Partners, co-founders of the sparkling water business.

In what was a proprietary all-equity deal, no buy- or sell-side advisors were engaged on the transaction. The sponsors employed an all-virtual due diligence strategy given the lockdown orders placed early this year.

“The issue was the logistics of not being together,” Friedman said, referring to flying restrictions. “Recording Zoom videos of diligence sessions benefited our investors, it just took more time to organize the deal than it would in the pre-covid time,” Friedman said, referring to the factory videos.

Although the investment terms remains disclosed, JW Levin Management focused on offering mentoring service over financial resources, according to Stephen Sadove, founding partner at the firm.

“Our primary role is providing management talent coaching; we did not put [in] the bulk of financial resources,” Sadove said, speaking from Westchester.

Waterloo’s products can be found on Target, Walmart and Costco shelves, among others. Looking ahead, the partners aim to grow Waterloo organically, targeting distribution expansion in the Northeast and Midwest and through the rolling out of more flavor profiles. “There’s an opportunity to get new accounts and flavors,” Sadove said.

Founded in 2017, Waterloo will be led by Jason Shiver as CEO and COO Jeff Arnold. Shiver is a former president of Amplify Snack Brands, parent of Skinny Pop popcorn.

Action Item: Check out the press release for more details.