Investors Dispute Bargain Valuation for Sparkling ICE

sparklingIn this summer’s already boiling pot of beverage investments and acquisitions, perhaps the biggest fish in the non-alcoholic beverage industry is now on the ingredient list.

Talking Rain Beverage Co. is exploring a possible sale of Sparkling ICE, the company’s explosively fast-growing line of zero-calorie, carbonated drinks, according to The Wall Street Journal.

Since 2012, Talking Rain CEO Kevin Klock has steered an extraordinary surge in sales for the brand, achieving a nearly 10-fold leap from $43 million to over $400 in just two years, and is expected to hit a half-billion dollars in sales later this year. In April, Talking Rain completed the creation of an independent national DSD distribution network for Sparkling ICE, and after years of growth in the grocery channel, the brand last year set its sights on a much larger presence in C-stores.

Citing sources close to the potential deal, the Journal wrote that Talking Rain has enlisted Rabobank Group, an international banking and financial services company, to run the sale process. While Sparkling ICE would certainly be incredibly valuable to any CPG portfolio, the Journal specifically noted the interest of J.W. Childs Associates, which owns Sunny Delight Beverage Co.

Repeated calls to investors echoed rumors that the brand has been for sale for approximately a year, with Rabobank leading the process.

Reached at his desk, Ross Colbert, Rabobank’s Global Strategist for the Beverage Sector refused to comment on the Journal’s story.

While Rabobank may be running a sale — something that Klock rejected out of hand — both he and a series of investors disputed the Journal’s report that a sale of Sparkling ICE could “fetch somewhere in the $100 million range.”

A $100 million valuation would be about ¼ of its current annual revenues — and they are expected to grow to nearly $500 million by the end of the year.

Chris Harned, a managing director in the consumer group at the investment bank R.W. Baird, said of that potential sale price “it seems low to me,” adding that a combination of cash and, possibly, 20 percent of the combined business of Sunny Delight and Sparkling ICE sounded more reasonable. He did note that the business had been rumored to be for sale for about a year.

Comparable sale valuations for brands with similar revenues to Sparkling ICE range from the $450 million that Hormel Foods recently paid for Muscle Milk, which had sales of about $370 million in the previous year, to the $1.55 billion that Campbell’s paid for Bolthouse Farms, which had annual sales of $689 million, when it was acquired in 2012. Vitaminwater maker Glaceau also had sales of $350 million in 2007 when it was acquired by Coke — for $4.1 billion.

“This is totally wrong,” said an investment professional who has close knowledge of Talking Rain’s financial situation.

“At $100 million, there would certainly be a lot of interest from private equity,” added another investor who has familiarity with Talking Rain.

Kevin Klock, CEO, Talking Rain

Kevin Klock, CEO, Talking Rain

Reached by phone, Klock offered a definitive “no” when asked if Talking Rain was attempting to sell Sparkling ICE.

“I was as surprised at [the Journal] article this morning as you,” Klock said.“There’s no book, there’s no nothing,” he said. “My guess is that as any fast-growing company, as we look for bank financing to fund growth, someone’s just making speculation.”

Pressed about a report that Sparking ICE has been on the market for a year, Klock said that, “We have not been out there actively. It’s not an active process at all.”

As to the Journal’s statement that Rabobank has working on Talking Rain’s behalf, Klock noted that while the company is indeed looking for new financing, the investment bank is not part of equation.

“A long time ago there were discussions there, one time exploring growth capital, but we haven’t been out selling the company,” he said.

He noted that Coke’s recent acquisition of a minority stake in Monster Beverage Corp., Hormel’s purchase of Muscle Milk, and the Reignwood Group investment in Vita Coco has set off a flurry of rumors about the potential for other deals involving independent, fast-growing beverage companies, including Talking Rain and Red Bull. Nevertheless, he pointed to Talking Rain’s continued development of new co-packing, distribution and warehousing relationships as evidence of its focus on growth, despite frequent discussions about a possible acquisition of the company.

“Frankly… we’re having these conversations every couple months,” he said.

Klock chuckled at the $100 million figure cited by the Journal as to a potential sale price of Sparkling ICE, noting that “a lot of the numbers [in the article] were inaccurate.” However, he declined to offer an estimate of the brand’s valuation.

“We’re a high growth company, and there’s a variety of factors,” he said. “I wouldn’t even want to speculate on what that is.”