Glenboden M & A Originations

Coca-Cola makes breakthrough in water drinks with Glaceau purchase

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Origination Status company acquisition agreement reached, June 2007;
Asset Glaceau Vitaminwater (USA), no.2 enhanced water producer;
Buyer The Coca-Cola Company (USA), world’s largest beverage company;
Seller Energy Brands Inc (USA), owner of Glaceau;
Buyer Rationale expanding beverage portfolio beyond carbonated soft drinks;
Seller Rationale attractive valuation, big strategic partner to sustain growth to next level;
NBs US water drinks market grew by 50% in 2006, whereas CSD market in slight decline
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Two of the big factors in non-alcoholic drinks M&A, right now are (i) the compelling theme of new-generation healthy non-carbonated single-serving beverages; (ii) the race between Pepsi and Coke to get as far beyond CSDs as possible. This deal underlines both trends. It also grows flavoured and enhanced waters, in the Coke portfolio, to a level where it achieves strategic critical mass; add-on or repeat acquisitions may follow by the group, in other developed geographies.

Just look at the chronology: Pepsico buys Izze Beverages (sparkling juice) in September last year, then Naked Juice (still juice) in November. In revenge, Coca-Cola buys Fuze Beverage (enhanced tea and juice) in February 2007, and now Glaceau (enhanced water). All of these are young and niche in scale, all have a high risk / high reward profile, all are in the US now but potentially going global later (just like Pepsi and Coke themselves, once upon a time).

From the information available, we can estimate that the sales multiples, not to mention EBITDA ones, have been pretty huge in these deals. The difference with Glaceau is that the sum of money is pretty huge also, which obviously amplifies the risk taken by Coke this time.

There’s a big question mark, however, over whether such an idiosyncratic brand as Glaceau will survive, or just turn out to be an expensive fad. Its young consumers may not be so loyal in the end. As the President of Glaceau so poignantly said, about this deal, ‘Coke sees the explosive potential of our brands’.

In fact, Glaceau’s the biggest acquisition in Coke’s history, which reminds us that Coke used to be an organic-growth animal, and that has had to ‘change its spots’ in the new environment.

But overall, Coke strategically is in dire need of a Glaceau. It has the potential to become Coke’s equivalent of Pepsico’s Tropicana (mutatis mutandis), thus filling a major relative portfolio gap. More immediately, it allows Coke’s share of the US water drinks market to grow from 5% to 35%, thus making it a more respectable no. 2 behind Pepsico’s 45% share.

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Size (€ mln) 4.100
Sector water drinks
Asset Quality US no.2 branded
Seller private equity
Buyer large plc
P/S 11,7
P/Ebitda n/a
Type total consideration
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