Mineral Water Enterprises in Spain March 2010 Essential Facts STRICTLY CONFIDENTIAL MERGENER Disclaimer __ The information contained in this confidential document ("Presentation") has been prepared by Mergener & Partners. It has not been fully verified and is subject to material updating, revision and further amendment. While the information contained herein has been prepared in good faith, Mergener has not given or have authority to give, any representations or warranties (express or implied) as to, or in relation to, the accuracy, reliability or completeness of the information in this Presentation, or any revision thereof, or of any other written or oral information made or to be made available to any interested party or its advisers (all such information being referred to as "Information") and liability therefore is expressly disclaimed. Accordingly, neither Mergener nor any of his Partners, agents, employees or advisers take any responsibility for, or will accept any liability whether direct or indirect,express or implied, contractual, tortious, statutory or otherwise, in respect of the accuracy or completeness of the Information or for any of the opinions contained herein or for any errors, omissions or misstatements or for any loss, howsoever arising, from the use of this Presentation.
The project was initiated by Herbert Mergener, a German national who has lived and worked in Spain for over 20 years as a naturopath
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Mineral Water Enterprises in Spain
March 2010
Essential Facts
STRICTLY CONFIDENTIAL
MERGENER
Disclaimer
__
The information contained in this confidential document ("Presentation") has been prepared by Mergener & Partners. It has not been fully verified and is subject tomaterial updating, revision and further amendment.
While the information contained herein has been prepared in good faith, Mergener has not given or have authority to give, any representations or warranties (expressor implied) as to, or in relation to, the accuracy, reliability or completeness of the information in this Presentation, or any revision thereof, or of any other written or oralinformation made or to be made available to any interested party or its advisers (all such information being referred to as "Information") and liability therefore is
expressly disclaimed. Accordingly, neither Mergener nor any of his Partners, agents, employees or advisers take any responsibility for, or will accept any liabilitywhether direct or indirect,express or implied, contractual, tortious, statutory or otherwise, in respect of the accuracy or completeness of the Information or for any ofthe opinions contained herein or for any errors, omissions or misstatements or for any loss, howsoever arising, from the use of this Presentation.
♦ The project was initiated by Herbert Mergener, a German national who has lived and worked in Spain for over 20 years as a naturopath
♦ During his tenure Mr. Mergener has gathered considerable experience in patient treatment with natural remedies and means, in particular with mineral water from Spanish sources
♦ After retirement some former patients and friends of Mr. Mergener, the owners of the mineral water enterprises, have approached him with requests to help find buyers for their property
♦ In 2007 Mr. Mergener commenced this activity and performs it on a regular basis since then
♦ Two mineral water companies have successfully changed hands with help of Mr. Mergener
♦ Current portfolio of Spanish mineral sources and plants offered for sale comprises 12 objects, recently a Portuguese enterprise was added hereto
Bottled Water Enterprises & Mineral Water Sources: Basic Information
The following objects are offered for sale
♦ “Price in the Package” means that the acquirer buys at least two objects from the portfolio.
♦ Enterprises 4 and 5 belong to one owner, therefore they are bundled and can be acquired only together.
♦ The price for the stand-alone object #4+5 is €23,0+€16.6 m, or €39.6 m, and it can be reduced only in case if at least one more object from the package is purchased additionally.
♦ The same pertains to objects #6 and #13.
#
Plant/
Well Location
Land
Area,
hectare
# of
Water
Sources L/Sec.
million
L/Year
Licensed
Volume,
Mil. L/Y
PET
Bottle
Plant
Stand-
alone
Price*
Price in
the
Package
1 P Madrid 4,0 2 20 631 158 YES 10,2 € 9,7 €
2 P Madrid 5,0 5 5 170 unlimited YES 14,6 € 13,9 €
♦ Per Capita consumption of bottled water In Spain was 146.5 liters in 2005: the second highest in Europe and the fourth highest in the world
♦ Total size of Spanish Bottled water market is about 6.8 bn liters in terms of volume and 1.7 bn Euros in terms of sales
♦ The average price per Liter of bottled water is € 0.25
♦ The Market grows at 4-5% rate annually
♦ Still water has more than 95% of the market, sparkling water has just 4.5%. That was never popular in Spain and consumer preferences are stable in this respect
♦ The area around the water plant of 100 km radius has the size of 31,400 sq. km
♦ Average population of this area is 2.8 million people (assuming the same density for entire Spain: 90 people/km2)
♦ Bottled water consumption on this area is 410 million liters
♦ Cost of transportation of 1.5 L bottle inside the 100 km circle is 0.014 €
♦ The next circle of proximity of 100 km has a three times larger area: 94,200 km2 and is populated by 8.5 million people who consume 1.2 bn Liters of bottled water a year.
♦ Cost of transportation of 1.5 L bottle inside the 200 km circle is 0.018 €
♦ The circle lying between 200 and 300 km around the plant has the area of 157,000 sq. km and is populated by 14.1 million people who consume around 2.1 bn liters of bottled water
♦ The cost of reaching those consumers is 0.021 € per 1.5 L bottle
♦ The most profitable area is the surrounding 300 km, but delivering up to 500 km is economically possible as well
♦ Under assumption that the off-take price is 9 cent/Liter we obtain the following figures:
♦ If we assume that the price per 1 L increases by 1 cent with each 100 km of distance, the EBIT margin shows a very strong growth despite higher transport expenses
♦ Roughly, each cent added on the sale price increases EBIT margin by 5%
♦ Hence, Branding and Marketing are the keys to profitability
History. Water qualityWater occurrence, license, technology, bottling line equipment
♦ The history of the enterprise starts in XVII Century, when the water sources became very popular for curing purposes, the place became a famous Spanish Spa Town
♦ In 1920 Spanish Nobel laureate in Medicine Santiago Ramón y Cajal has recommended the water from the North-Eastern sources for curing various diseases
♦ Today the Private Enterprise has three water sources and two plants
♦ The water quality is recognized as one of the best (significantly better than that of Vittel or Evian) in Spain
♦ Further interesting detail is the water occurrence which is outstanding:
♦ The first (old) plant pours 300 Liters per Second which sum up to 9.5 billion liters per year (1.5 times the entire Spanish bottled water market)
♦ The enterprise possesses an “unlimited” license (rare case in Spain), which means it can take and sale unlimited quantity of water.
♦ The bottling line equipment is 5 years old at maximum, the equipment of the newly acquired second plant is brand new
♦ Long-term off-take relationships with large discounter chains like DIA, Corte Ingles, etc., negotiations with the largest Spanish discounter chain MERCADONA are in progress
♦ The decision to sale was triggered by the death of the old owner. His children (legal heirs) have no consent regarding the future of the business and want a complete sell-off
♦ Incumbent General Manager who is running the business for 18 years is willing to stay and work with new owners
♦ Due to the private nature of the business it is highly probable that the accounting profit is “optimized”with the purpose of diminishing tax obligations;
♦ For obtaining real profitability metrics, a thorough financial analysis and detailed discussions with management are needed
♦ Mineral Water business on the Iberian Peninsula is typically quite profitable, the costs are well controlled, and margins are high enough to justify 2x-3x multiples to Sales
Date Land Target Acquirer SellerEnterprise
Value, €M
Multiple of
Sales
July '07 UK Sangs (Banff) Ltd. Sangs (Banff) Ltd (MBI Vehicle) ORESA Ventures N.V. 14.8 0.2x
May '07 Romania La Fantana (90% stake) Innova Capital Sp.z.o.o. n.a. 38.9 2.8x
May'07 USA Strathmore Mineral Water Co. Ltd. A.G. Barr Plc. Constellation Brands Inc. 22.0 1.0x
January '05 Italy Italaquae SpA L.G.R. Holding SpA Group Danone S.A. 137.5 0.9x
January '03 Canada Sparkling Spring Water Holdings Ltd. Group Danone SA n.a. 297.0 3.2x
July '02 Russia Saint Springs Nestle Waters SA n.a. 49.8 2.5x
September '02 Switzerland Valser Mineralquellen AG Coca-Cola Hellenic Bottling Co. Hess Group 136.0 1.8x
March '02 Portugal Vidago Melgaco e Pedras Salgacas Unicer Uniao Cervejeira SA Jeronimo Martins S.G.P.S 145.0 3.3x
February '02 Spain Fuente Liviana Damm SA n.a. 57.1 2.0x
July '01 Spain Balneario de Aguas de Solan de Cabras Pozo Family n.a. 141.4 3.9x
Maximum 3.9x
Minimum 0.2x
Median 2.2x
Spanish and Portuguese Transactions:
Maximum 3.9x
Minimum 2.0x
Median 3.3x
Source: Mergermarket
♦ Each particular enterprise / Project should be valuated with Discounted Cash Flow approach
♦ For the start comparable transactions serve as a good reference here
♦ 75% of all bottled water is being sold via discount department stores (see slide #7)
♦ Discounters which normally have a country wide coverage prefer to source “from one hand”
♦ Entry into the Discounter lists is possible when you have two or more water sources / plants
♦ Acquisition of the two plants in the North-East would give a good start:
♦ Established Brand Name
♦ Strong growth and profitability
♦ Existing long-term off-take relationships with Grandes Almacenes (Large Discount Department Stores)
♦ Further expansion can be either through organic growth (upside potential of the existing enterprises is at least 100%), new acquisitions (see the next slide) or both
♦ There is a potential and rationale (see the slide # 11) for developing of a premium Brand
♦ Combined with delivering to drugstores, pharmacies and traditional (small) stores that can create a highly profitable niche segment
♦ Expansion into adjacent market segments, like flavored mineral water, should be explored as well