Nestlé Waters Completes Acquisition of Sweet Leaf Tea Company; Reaction from Founder and Management

With a 35 percent stake in the company already in hand, Nestlé Waters announced yesterday that it had fully acquired Sweet Leaf Tea Company. Though the financial details of the sale have not been disclosed, Nestlé executed an option to purchase the Austin, TX-based company outright after making an initial investment of $15.6 million in 2009.

“We always expected Nestlé to purchase the company –  it just came sooner that we thought,” said the chief executive officer of Sweet Leaf, Dan Costello. “But Sweet Leaf had been exceeding Nestlé’s sales expectations and, combined with our scalable platform, it was a good time for [the acquisition].”

The deal gives Sweet Leaf far greater access to Nestlé’s distribution channels as well as its expertise in supply chain management and a powerful sales and marketing force.

“It makes the fight more palatable when you have a great partner, and Nestlé will be tremendous help for us going forward,” Costello said.

Costello, who expects the acquisition to be approved by government regulators within a matter of weeks, said that while there will be no immediate changes in staffing at Sweet Leaf (“it will be business, as usual”) the company may consider consolidating operations in the future.

“Austin is very important to Sweet Leaf and will continue to be,” Costello said. “Nestlé Waters is made up of a collection of brands that the company has acquired over the year and they appreciate and respect the entrepreneurial spirit of those companies – it is their core competency.”

“But over time, there will be overlapping synergies,” Costello continued. “We’re in no rush to do so, but when it makes sense, we’ll integrate certain aspects of the business.”

Prior to the acquisition, Costello stated that Sweet Leaf had been in the process of developing a long term sales plan aimed at doubling revenue to $100 million. Though now armed with access to Nestlé’s 700-person sales force, as well as forecasts that estimate total US sales of RTD teas to reach $4.4 billion in 2011, Nestlé believes Sweet Leaf could reach that sales figure in a very short period of time.

“Sweet Leaf reached certain milestones of growth and our future investment in the company was contingent upon our expectations for continued growth,” said Jane Lazgin, director of corporate communications of Nestlé Waters. “We expect [as a result of the acquisition] that sales could double within 1-2 years.”

Lazgin also stated that the acquisition puts Nestlé in position to better support individual lifestyles that are trending toward to healthy and organic consumption and that while there were no current plans to expand Sweet Leaf’s product lines, future expansion was possible.

“It’s one of the reasons we wanted to leave the team in Austin in place and allow them to continue to thrive,” Lazgin noted.

Sweet Leaf’s founder and former chief executive officer, Clayton Christopher, said the deal gives Nestlé a brand with mass consumer appeal, an approachable flavor and a message of “better tasting/better for you.”

Christopher, now on the board of directors at Sweet Leaf, noted that the company’s $0.99 pricing on its 15.5 oz. cans played an important role in the company’s growth, specifically by giving the brand inroads into c-stores and, by extension, far greater ability to distribute the product nationally.

“If we hadn’t developed that product, we’d still be struggling in that channel,” said Christopher. “And in hindsight, we probably [should have created the SKU] before we partnered with Nestlé two years ago.”

Though even with commodity prices continuing to skyrocket, Costello stated that within the foreseeable future, Sweet Leaf will not raise prices in large part due the strength of Nestlé’s supply lines.

“We’ve created affordable packaging for every customer and every channel, and still maintained a high quality liquid,” Costello said. “Though [despite an increase in commodity costs], it’s not in our plans to raise prices. What will help tremendously is the purchasing power of Nestlé as well as their expertise in logistics. And as we expand further from out Austin plant, we’ll be able to maneuver more easily through Nestlé’s network and save on transportation costs.”