March 28, 2024

News Release

Cott Corporation announces acquisition of S&D Coffee and Tea

Cott also reports second quarter 2016 results and declares dividend.

| 8/5/2016

TORONTO, ON and TAMPA, FL-- Cott Corporation (NYSE: COT) (TSX: BCB) today announced its results for the second quarter ended July 2, 2016, and also announced that it has entered into a definitive stock purchase agreement to acquire S&D Coffee, Inc. ("S&D"), a premium coffee roaster and provider of customized coffee, tea, and extract solutions to the foodservice, convenience, gas, hospitality and office segments in the United States. The purchase price is approximately $355 million, on a debt and cash free basis, and represents a high 6X post synergy adjusted EBITDA multiple. Ron Hinson, S&D's Chief Executive Officer, and S&D's leadership team, have agreed to join Cott and continue to lead the S&D business.

SECOND QUARTER 2016 HIGHLIGHTS 

  • DS Services achieved a 36% increase in organic new customer additions in the United States.
  • Cott North America actual case volume increased by 4% due primarily to 10% growth in the sparkling water and mixer category and 15% growth in contract manufacturing, offset in part by declines in carbonated soft drinks and shelf stable juices.
  • Gross profit increased to $253 million and gross margin was 33.0% compared to gross profit of $241 million and gross margin of 30.9%.
  • With the addition of Eden Springs, and following the S&D transaction, fiscal 2019 operating cash flow is projected to be approximately $395 to $435 million and capital expenditures are expected to be in the range of $160 to $170 million, resulting in adjusted free cash flow of approximately $225 to $275 million.

"I am very pleased with another quarter of exceptional new customer additions across our entire U.S. Home and Office business as well as the overall increase in our gross margin and free cash flow," commented Jerry Fowden, Cott's Chief Executive Officer. "During the quarter we invested $4 million behind home and office customer programs which helped drive a 36% increase in new customer adds," continued Mr. Fowden.

S&D COFFEE & TEA ACQUISITION 

"The S&D acquisition is another great step in our stated strategy to enhance our existing home and office water delivery, coffee, tea and filtration businesses where we believe our platform, operating strength and synergies can be leveraged. The addition of S&D brings our Better for You beverage platform to over 65% of our adjusted EBITDA on a pro forma basis with carbonated soft drinks representing just 12% of adjusted EBITDA," commented Jerry Fowden, Cott's Chief Executive Officer. "After closing the S&D acquisition, we will have a leading position in the coffee and tea foodservice industry in North America, which is an excellent complement to our leading HOD water, office coffee and filtration business," continued Mr. Fowden.

"S&D was started in 1927 with a vision to produce quality coffee for the local area and has grown over the last 89 years to become a leading premier, national provider of quality coffee, tea and extracts for multiple channels," said Ron Hinson, S&D's Chief Executive Officer. "In order to take the next step in our journey we wanted to find the right partner to support our future growth. In sharing our values and desire to further expand our category leadership in coffee, tea and liquid extracts, we found Cott to be the ideal partner for our business," continued Mr. Hinson.

S&D is a growing business with over $550 million in estimated 2016 revenues. The acquisition broadens the distribution platform of Cott's existing DS Services coffee business in the United States by adding a leading scale platform with in-house roasting, grinding and blending capabilities alongside a national distribution system. Consistent with Cott's strategy, the acquisition is expected to be accretive to cash flow from operations and adjusted free cash flow (excluding acquisition, integration and transaction costs) in its first full year and provide a cash-on-cash IRR above its cost of equity.

Compelling Strategic Rationale

The acquisition of S&D is in line with Cott's strategy of focusing on acquiring cash accretive businesses with higher growth while continuing Cott's beverage diversification outside of carbonated soft drinks, shelf stable juices and large format retail. The acquisition is expected to:

  • Provide a growing, leading position in coffee, tea and liquid extracts in the United States;
  • Continue Cott's shift to higher growth categories; 
  • Provide approximately $12 million of run-rate procurement cost, distribution and other synergies achieved over a four year period;
  • Serve as a platform for smaller accretive acquisitions;
  • Improve Cott's channel mix outside of large format retail and supermarket stores;
  • Offer cross selling and vertical integration opportunities to leverage DS Services' and Cott's products; and
  • Reduce customer concentration.

Tom Harrington, Chief Executive Officer of DS Services, commented, "We are very excited about expanding our coffee and tea platform in the United States with the addition of a growing, leading coffee and tea business with its own custom roasting capabilities. We believe the acquisition of S&D will provide meaningful benefits from our combined procurement efficiencies, vertical integration and distribution networks, as well as increased management expertise to create a stronger, cash generating, growth oriented service platform throughout North America."

Transaction Highlights

The combination is expected to be accretive to cash flow from operations and in turn to adjusted free cash flow (excluding acquisition, integration and transaction costs) in the first full year. The transaction will be funded through a combination of incremental borrowings under Cott's ABL facility and cash on hand. The acquisition, which is expected to close in August 2016, is subject to certain customary closing conditions and purchase price adjustments. SunTrust Robinson Humphrey, Inc. acted as financial advisor to Cott. Additional financial information and a modeling call will be presented on August 17, 2016 which will incorporate modeling information on both S&D and Eden Springs. Further details are set forth below.

SECOND QUARTER 2016 GLOBAL PERFORMANCE 

  • Net cash provided by operating activities of $87 million less $33 million of capital expenditures resulted in free cash flow of $54 million, representing an $8 million, or 19%, improvement over the prior year comparable period. 
  • Revenue of $765 million was lower by 2% (broadly flat on a foreign exchange neutral basis) as a result of the mix shift from private label to contract manufacturing and the competitive landscape in our traditional business, offset by the growth of DS Services and the addition of the Aquaterra business.

More information and charts at Cott newsroom.

Tags: Manufacturing/Distribution

Florida Business News

Florida News Releases

Florida Trend Video Pick

Bitter-to-swallow cocoa costs force chocolate shops to raise prices
Bitter-to-swallow cocoa costs force chocolate shops to raise prices

Central Floirda chocolate shops are left with a bitter taste as cocoa prices hit an all-time high earlier this week.

Video Picks | Viewpoints@FloridaTrend

Ballot Box

Should Congress ban the popular social media app TikTok in the U.S.?

  • Yes
  • No
  • Need more details
  • What is TikTok?
  • Other (Comment below)

See Results

Florida Trend Media Company
490 1st Ave S
St Petersburg, FL 33701
727.821.5800

© Copyright 2024 Trend Magazines Inc. All rights reserved.