Cott Corp.'s (COT) $1.25 billion acquisition of DSS Group Inc. last week is further indication that a leveraged buyout of the Canadian maker of private-label drinks is off the table in the near term, according to industry sources and followers of the company.
"It does diversify them, it does make them substantially larger, but it could make them less buyable than before," said a source familiar with the situation who asked to remain unnamed.
Toronto-based Cott announced Nov. 6 that it had struck a deal to buy the parent of Atlanta-based DS Services Holdings Inc., a direct-to-consumer provider of bottled water, office coffee and water filtration services, on a cash-free and debt-free basis. The seller was Crestview Partners LP, the New York private equity firm that bought DS only about 14 months ago, on Sept. 3, 2013, for an undisclosed sum.
"They [Cott and DS] both have fairly limited prospects in terms of finding buyers at attractive prices," the unnamed source said, noting that the private-label bottled water products Cott will inherit via DS face stiff competition from Pepsi Co. (PEP) and Coca-Cola Inc. (KO), as do its existing private-label soft drink, juice, flavored water, energy drink and ready-to-drink tea products.
Cott officially confirmed on Feb. 5 that it had retained Credit Suisse Group to help evaluate alternatives, but the company actually began its search for a buyer a year or so ago, the unnamed source noted.
The Deal reported in February that Cott — the company best known for its Royal Crown Cola International, or RC Cola, brand, which it owns everywhere outside North America (Dr Pepper Snapple Group Inc. owns the North American rights) — could use its cash to pursue acquisitions as an alternative means to unlock shareholder value, should it be unsuccessful in finding a buyer.