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Primo Water Corporation acquires Mountain Valley Water Company

By Tim Bamberger and Isabelle Duerbeck (King’s College London) and Ryan Horlick, Eugene (Christina) Lee, and Britney Cheng (The University of Michigan)


Overview of the deal

Acquirer: Primo Water Corporation

Target: Mountain Valley Water Company of Los Angeles (MVLA)

Total Transaction Size: Undisclosed figure

On October 13, 2020, Primo Water Corporation announced that its wholly-owned subsidiary Primo North America, has acquired all of the assets of Mountain Valley Water Company of Los Angeles (MVLA) for an undisclosed amount. With Primo Water Corporation being a leading water and water filtration services provider in North America and Europe, the acquisition of MVLA will add 8,000 new customers to Primo’s existing customer base and will enhance its presence in the Los Angeles area. In a statement released by Primo Water Corporation, the company states that existing MVLA customers will still be able to purchase Mountain Valley Spring Water products, in addition to Primos product-offering.

"MVLA shares our focus on offering high-quality products and delivering superior customer service and strengthens our footprint and customer density in southern California," - Dave Muscato, President of Primo NA

Company Details: Acquirer – Primo Water Corporations

Primo Water Corporation, formerly Cott Corporation, is an international water services company with strong positions in the US, Canada and Europe. Primo Water Corporation operates multiple water, tea, coffee, extracts and filtration equipment brands, supplying approximately 2.5 million customers in 21 countries, with revenues of over $2 Billion.

Founded in 1952, headquartered in Tampa, Florida (USA)

CEO: Tom Harrington

Number of employees: 10,000+

Market Cap: $2,285 bn (as of 17/10/2020)

EV: $3.75 bn

LTM Revenue: $2,394,500,000

Company Details: Target - Mountain Valley Water Company of Los Angeles

Mountain Valley Water Company of Los Angeles is a major water service distributor in the Los Angeles area, and the largest distributor of Mountain Valley in the US. Its main brand, Mountain Valley Spring Water, is already owned by Primo Water Corporation, since its purchase in 2018 by the firm’s DS Services arm for $75.8 million, back when the company was still known as Cott Corporation.

Founded in 1983, headquartered in Downey, Los Angeles, CA (USA)

CEO: Mark Scott (President)

Market Cap: no data (privately held)

‘EV: no data (privately held)

LTM EBITDA: no data (privately held)

LTM EV/Revenue: no data (privately held)

LTM EV/EBITDA: no data (privately held)

Projections and Assumptions

Short-term consequences

Dave Muscato, President of Primo North America, announced the deal would allow Primo to strengthen their footprint, increase their customer density by eight thousand customers, and reduce their competition in Southern California. The acquisition of MVLA both exposes the company to majority ownership of the California customer demographic and equips them to distribute new product lines to existing customers—tea, coffee, and sparkling water will be newly available purchases to Los Angeles residents. Given Primo’s emphasis on cleaner, natural resources delivered through sustainable solutions, Muscato and Primo believe the acquisition exposes the company to a California customer base well-suited to their organizational values.

Although the financials of the deal itself have gone unreleased, this deal is expected to provide a bump in the already increasing North American revenue Primo saw in Q2. Allowing the company to now market additional revenue streams to their pure water product line, it can be expected that southern California sales will experience immediate exponential improvement. It must be noted that product integration of new streams will require initially increased expenditures, but the revenues provided by said streams are expected to overshadow the backend costs. Overall, while simultaneously exposing the company to new customers, increasing its California market share, and introducing additional products to a customer base devoted to Primo’s organizational values, this deal appears to be undeniably positive.

Long-term Upsides

Primo Water Corporation’s acquisition is in line with its long-term vision and commitment to delivering high-quality water products centered around natural sources, premier customer service, and ecological preservation. As Mark Scott, President of MVLA, added, "Primo NA is a natural combination for MVLA” given these mutual commitments. Following the successful integration of the merger, Primo Water Corporation will become the sole home and office bottled water distributor of Mountain Valley spring water products in southern California, strengthening its position in both Los Angeles and the surrounding region.

Customers of MVLA will continue to be offered Mountain Valley Spring Water but will also gain access to the Primo water brand in the region as well as the ability to select additional products for their orders, including coffee and tea. This diversification of product offerings to its market in southern California will enable Primo Water Corporation to establish a stronger presence which in turn will increase brand identity and brand loyalty in the region.

Overall, the deal is expected to have similar results to that of Primo Water Corporation’s acquisition of Mountain Glacier in Texas and Tennessee earlier this year. The nature of the deal was quite similar to that of MVLA as Primo Water established a stronger presence in these regions due to not only the larger customer base but also the introduction of an expanded product line offering. The acquisition of MVLA will have comparable outcomes as it will improve brand identity and presence in the southern California area as the sole distributor of MVLA products and strong competitor to other beverages in the market.

Risks and Uncertainties

Although the acquisition of MVLA will create a pro forma company with a larger customer base, especially in Southern California, Primo still faces risks in their decision to acquire Mountain Valley. There is diversification risk as Primo will now offer tea, coffee, and sparkling water products to MVLA’s existing customers. By expanding its product portfolio, Primo may face increased competition or may not be well-suited to offer these additional drinks to new customers. However, the main mitigant to this risk is the addition of 8,000 new customers as a result of this acquisition. Even if Primo faces pushback from their new product offerings, they will still be able to sell Mountain Valley water to MVLA’s existing customers, with the only downside being unrealized synergies. Another mitigant is the fact that the combined company will be the sole provider of Mountain Valley Spring Water in southern California, which should allow the company to maintain or increase market share from competitors in the region.

As with most inorganic growth, there are the risks of clashes in company culture and of losing existing customers. However, both Primo and MVLA place a large emphasis on high-quality products from natural sources. This shared focus on providing benefits for their customers and the environment should help avoid any disputes regarding culture. Additionally, existing customers will be offered the full range of water products from both Primo and MVLA pre-acquisition, which may allow the company to gain more customers rather than lose existing ones.

“Primo NA is a natural combination for MVLA given our mutual commitment to delivering the highest quality water products centered around natural sources, premier customer service and ecological preservation.” - Mark Scott, President of MVLA


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