$4.1 billion for a business with latest full year sales of reportedly around $350 million. Hats off to Bikoff. This level of price multiple is scaling new heights. It's Coke's biggest ever deal with a drinks competitor. Coke certainly needs greater strength outside carbonates. But there has to be a question mark over whether such a premium can be made to pay its way. In its favour:
- Glacéau is the clear pioneer in US enhanced waters.
- Vitaminwater has phenomenal design, character and lifestyle appeal.
- It's currently enjoying more momentum than any other brand in the sector, most notably its rival Propel from PepsiCo.
- Darius Bikoff and his team have sweated their socks off in store-by-store sampling with courage and conviction.
- They've innovated with intelligence, most recently with vitaminenergy.
- There are still substantial new US distribution opportunities, particularly in mainstream retail, foodservice and fountain.
- The international potential is also huge, with few other serious contenders at the moment.
Against this:
- Vitaminwater is not as low in calories as its water associations might suggest.
- Its functionality benefits may be challenged and it may take time for claims to be backed up by sufficient scientific evidence.
- It is largely unproven outside North America.
- There is little track record of successful internationalisation in flavoured or enhanced waters.
- The Coke system will have to show exceptional flexibility to adapt, especially in respecting the best of existing distribution partnerships.
- $4.1 billion must assume very high and long lasting growth.
In my opinion, the strategy is sound, but even the Tata price of $2.3 billion last August was steep. Gatorade has always struggled to spread internationally. Snapple suffered at the hands of big company integration in the 1990s. Numerous other brands have lost momentum after losing their independence, some under the tutelage of Coca-Cola. With all its other priorities and pressures, Coke will need to tread with extreme care to sustain what's special about Glacéau and must be wished well in pulling it off. This is the start of a new chapter in the company's annals and success will move the whole industry forward. PS If Glacéau is worth over $4 billion, where does that put Red Bull and Hansen ? Even Innocent could expect more than £1 billion, but I hope it will carry on to join the other angels in the firmament by sticking to the knitting for a few more years yet.
