NetworkNewsWire
Editorial Coverage: After a sluggish start to 2020, merger and
acquisition activity in the food and beverage industry survived
COVID-19 and picked up in H2, with 136 of the year’s 222
transactions closing after June last year. Total
transaction value for the year was $13.8 billion, only slightly
lower than 2019. Despite the lingering pandemic, consolidation
continues in the industry and deal flow has returned to a torrid
pace, creating an exceptionally attractive market climate for
The Alkaline Water Company Inc. (NASDAQ: WTER)(CSE:
WTER) (Profile), the U.S.’s largest independent
alkaline water company, and its Alkaline88(R) brand, which is now
endorsed by Shaquille O’Neal, NBA Hall of Famer and Papa
John's International (NASDAQ: PZZA) board member. Last
years’ action included growth equity investor PowerPlant Ventures
buying ZICO coconut water from Coca-Cola Company (NYSE: KO) and
Nestle
SA (OTC: NSRGY) acquiring Essentia Water for an
estimated $1 billion, a strategic move to strengthen its
value-added water business to compete with brands like PepsiCo
Inc. (NASDAQ: PEP), which bolstered its water
portfolio with the acquisition of SodaStream in 2018. Only slightly
stunted by the pandemic in 2020, M&A in the food and beverage
industry should accelerate as competition among majors intensifies
and suitable targets dwindle.
- WTER is now the largest independent alkaline water company in
the nation, having reported 2020 FY revenue of $41.1 million,
representing 28% YoY.
- Alkaline water is an emerging market, expected to reach $1
billion in 2022.
- On average, each American drank 43.7 gallons of bottled water
in 2019, driving sales to $34.6 billion.
- WTER partners with NBA legend Shaquille O’Neal, who will serve
as advisory board member and brand ambassador.
Click here to view
the custom infographic of The Alkaline Water Company
Inc. editorial.
Water, Water Everywhere
Bottled water is hands down the most popular beverage in America
by volume, outselling carbonated soft drinks for the fourth
straight year in 2019, according to Beverage Marketing Corporation.
Sales in 2019 reached $34.6 billion. Data from
market research firm Statista shows that 88% of Americas drink
water every day and 26% buy name brand water, with every person in
America drinking, on average, 43.7 gallons of bottled water in
2019.
The megatrend the water majors are now trying to capture is the
increasing consumer health consciousness towards enhanced water as
a replacement for sugary drinks. The trend accelerated with people
on lockdown buying enhanced water for a slew of reasons, but the
fact remains that many consumers have now incorporated
value-added waters as part of their lifestyle.
The Alkaline Water Company
Inc. (NASDAQ: WTER) (CSE: WTER) is
the largest independent player in the alkaline water market that is
expected to
reach $1 billion by next year. As the name implies, the
Scottsdale, Arizona-based company specializes in producing drinking
water with trace minerals and electrolytes and a higher pH,
specifically 8.8, than regular drinking water, which has a neutral
pH of 7. The higher pH is believed by advocates to have a bevy of
benefits, potentially slowing the aging process, regulating the
body’s pH level (neutralizing acidity commonly presented in some
diseases) and deactivating pepsin, a principal culprit in acid
reflux. Though, The Alkaline Water Company does not make any of
these claims.
In addition to its flagship Alkaline88 brand, the company
responded to consumer demand by launching a new line of six
flavor-infused products branded A88 Infused(TM) in 2019. The
products are sold in an estimated 75,000 retail stores, which while
impressive, leaves plenty of headroom for growth as it represents
only 8% of all retail and hospitality outlets available to
consumers. The company is aiming for 90,000–100,000 retail
locations in the next year. Any bigger peer looking for immediate
market share could leverage WTER’s existing distribution — plus its
Direct Store Delivery ("DSD") platform that now reaches over 10,000
customers — combine it with their network and dominate the alkaline
water market segment.
Repeat Customers a Staple
The brand awareness and newfound loyalty during COVID-19 was
best exemplified by independent data that showed 31% of the people
who drank Alkaline88 during the 52-week period ended March 6, 2021,
were first-time buyers. The same research showed that 47% of the
people who tried Alkaline88 in the last year have purchased it at
least four times.
Part of the reason for the loyalty likely has to do with the
social culture of The Alkaline Water Co. Millennials and younger
generations are passionate about ethos and factor that into
decision making about purchases. The company adheres to the
strictest industry guidelines set forth by individual states, FDA,
EPA and International Bottled Water Association ("IBWA"). It has
retooled its ionization system to use less water and electricity
and was the first national company in the industry to offer
eco-friendly aluminum packaging options.
Shaq’s Golden Rule for Endorsements
Shaquille O’Neal is known not only for his legendary NBA career
and four NBA championship rings but also his business skills that
have built his brand’s empire. He’s widely recognized for his
prowess as a marketing influencer, a skill attributed to both his
massive fan base and his refined business acumen to be selective in
what he endorses and to not dilute his value. Today, Shaq stars in
commercials for The General, Icy Hot, Papa John’s, Ring and
Carnival Cruise Lines among other tier-one brands.
As he said in a 2018
interview with HBO Real Sports, O’Neal won’t promote a product
unless he genuinely likes it or uses it himself. “If I am going to
sell to the people, I have to be honest to the people,” O’Neal said
during the interview.
That says a great deal about WTER as Shaq recently entered a
three-year partnership with The Alkaline Water Company.
According to the partnership, O’Neal will join the company as an
equity partner and member of the board of advisors; he will also
serve as a marquee brand ambassador for Alkaline88.
“Alkaline88 is an innovative product in the water category and I
am so excited to partner with The Alkaline Water Company to help
raise their game to new heights,” said O’Neal. “I am humbled by the
opportunity to join the Advisory Board while also being a brand
ambassador.”
WTER officials noted that Shaq’s track record as a basketball
champion and Hall of Famer has translated into similar successes in
business and corporate partnerships. “His reputation as an astute
investor, larger-than-life brand partner, and phenomenal ambassador
makes this partnership extremely exciting,” said Aaron Keay,
Chairman of The Alkaline Water Company. “We want to welcome
Shaquille to the company’s advisory board and believe his positive
presence and global outreach will enable Alkaline88(R) to
aggressively push our growth trajectory even faster.”
Accelerating an Already Steep Growth Curve
With 47% customer retention, the key to Alkaline88 becoming a
household brand is a numbers game that can be won quickly with Shaq
on the team as well as other partnerships and team members the
company is building. For example, just months ago The Alkaline
Water Company partnered with
Hensley Beverage Company for direct-to-store delivery ("DSD")
throughout the state of Arizona.
In addition, WTER’s last full-year financials included record
numbers. Q4 2020 revenue reached $12.1 million, representing
year-over-year growth of 51%, while full-year growth for 2020 came
in at $41.1 million, which comes in at 28% year-over-year growth.
These sales figure are particularly relevant in the food and
beverage industry as a quantifiable metric of value. Beverage
companies traditionally sell between four to six times gross
revenue.
In Q3 fiscal 2021, which ended December 31, 2020, the company
reported record
revenue of $10.2 million, a 20% increase from the year prior
quarter. Even factoring zero growth resulting from WTER’s recent
partnership announcements, which seems extremely unlikely, the
company’s FY 2021 forecast would be approximately $41 million,
holding steady with last year’s performance. Currently, WTER’s
market cap is an estimated
$105 million, or 2.5x gross revenue. In a market that has seen
segment leaders such as Core and Essentia acquired at highly
favorable multiples, The Alkaline Water Co. stands out as a
potentially undervalued takeover candidate.
Majors Fork Out Billions to Make Billions
More
The writing has been on the wall for two decades that consumer
trends were headed away from sugary drinks and straight toward more
flavorful and functional waters that are perceived as far
healthier. Beverage companies have had to adapt, and the majors
have shown that they’re not afraid to open their checkbooks in
order to carve back some of the evaporating soda revenue via
value-added waters.
Coca-Cola Company (NYSE: KO) may be
best known for its eponymous brand, but the product lineup runs
deep into other beverages, including popular offerings such
Powerade, I LOHAS, Bon Aqua and Dasani that generate more than $1
billion each annually for Coke. In 2007,
Coke made its then biggest ever acquisition, paying $4.1 billion
for Glaceau Vitamin Water, which was doing $350 million in annual
sales (11.7x gross revenue). Coke has since grown the brand to over
$1 billion in annual sales.
PepsiCo
Inc. (NASDAQ: PEP) has been no stranger to the
acquisition pathway to diversify from carbonated beverages. In
2018, Pepsi shelled
out $3.2 billion in for SodaStream in 2018, a 31% premium to a
stock that was already up substantially for the year. During the
latest quarter before the deal was announced, SodaStream brought in
a record $171.5 million (equating to a 4.7x gross revenue buyout).
Last year, at the peak of the pandemic in March, Pepsi agreed to
pay $3.85 billion for the popular energy drink maker Rockstar
Energy Beverages, a buyout meant to give Pepsi more exposure to
rising demand in the functional beverage space.
Nestle
SA ADR (OTC: NSRGY) shook up the beverage market this
year while ultimately sending a clear message where its expertise
sees the best market opportunity. Terms weren’t disclosed, but
Nestle announced that it had acquired
Essentia. The acquisition news came only weeks after Nestle
sold its North
American bottled water business, essentially a collection of
spring water brands, to private equity firms One Rock Capital
Partners and Metropoulos & Co. for $3.2 billion. Nestle
believes the sale has it better positioned to capture emerging
consumer trends, such as functional water.
Papa
John's International Inc. (NASDAQ: PZZA) makes sure
its menu caters to those seeking alternatives to carbonated soda.
The company is partnered with
both Pepsi and Coke, meaning the restaurant, depending on
location serves Aquafina, LIFEWTR, Dasani, Gatorade and Montellier
Sparkling Water, made by Canadian Pepsi bottler Alex Coulombe ltée,
with Pepsi holding the U.S. contract and Coke serving most
international locations.
What’s of particular interest is that the functional water
sector has exceptionally few established companies with stand-out
products and growing at a strong clip. Those that are checking all
the boxes certainly won’t be overlooked when the majors go shopping
for their next takeover target.
For more information about The Alkaline Water Company, please
visit The Alkaline
Water Company.
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