Alkaline water company Flow Beverage Corp. has announced a definitive agreement to sell its Verona, Virginia production facility to sports drink maker BioSteel in a deal valued at $19.5 million.
Upon completion of the transaction — comprising $13.2 million in cash and $6.3 million in debt, plus the retirement of lease obligations — BioSteel will become a co-packing partner for Flow at its newly acquired plant. All active facility employees will be retained by BioSteel following a post-closing transition period.
“The sale of the Verona production facility is a major milestone towards achieving profitable growth of the Flow brand,” said Nicholas Reichenbach, founder and CEO of Flow, in a press release. “Through a significant reduction in our operating expenses associated with operating Verona and a material reduction in related future lease obligations, we have meaningfully improved our financial position and streamlined our organization. By maintaining ownership of our Virginia artesian spring and securing a co- manufacturing agreement with BioSteel, we expect continuity in our supply chain as we invest in continued revenue growth in the U.S.”
According to press materials, the sale will accelerate Flow’s path towards profitability by simplifying its operations, improving its balance sheet and allowing the company to focus on sales and marketing. The water company will maintain its ownership of its source in Virginia, a 144-acre artesian spring.
While attempting to scale, Flow has also been conscious of cutting costs in recent quarters as declines in its co-packing business, down 28% in Q3 across plants in Virginia and Ontario, have weighed against increasing revenues. During the company’s most recent earnings call, Reichenbach acknowledged that Flow would require new financing in the near future and alluded to non-dilutive options, including the two production plants. The company has also seen several departures in its management team over the past year, most notably the exit of former Nestlé Waters chairman and CEO Maurizio Patarnello in June.
Meanwhile, the acquisition marks another step forward for BioSteel, which has emerged as a rising player in sports drinks following recent consolidation at the top end of the category with PepsiCo (Gatorade) and The Coca-Cola Company (BodyArmor, Powerade). The brand is backed by investment from beer and spirits giant Constellation Brands, and has picked up major endorsement deals from NBA teams and the National Hockey League (NHL) recently.
Vertically integrating its business is a “next critical step” for BioSteel, the company said, and also allows it to continue using Tetra Pak carton packaging, which Flow also employs.
“BioSteel is growing at a record pace, with thousands of new points of distribution added since the beginning of the year, and this acquisition allows us to unlock greater efficiency in our business as we achieve full vertical integration of our U.S. operations,” said Bruce Jacobson, President of BioSteel. “As we move toward the top of the sports drink category, this agreement also supports our ability to consistently supply our premium ready-to-drink sports drinks, packaged in environmentally friendly Tetra Paks, which is a competitive advantage, and support our consumers with the “Clean. Healthy. Hydration” that the next generation of athletes demands.”