Cott Corporation (NYSE: COT) 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.”
Financial Highlights
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.
