Lossmaking water delivery firm Palm Springs has finally succumbed to an offer from the Asia-Pacific drinks group Coca-Cola Amatil, allowing the bigger group to continue its expansion in this fast-growing market.
The deal, worth A$7.4 million, follows a request from Palm Springs for CCA to purchase the business, just two years after it rejected an offer from the same group.
Palm Springs has recorded around $50 million in losses over recednt years and despite recently implementing cost-saving measures and investing in new products, the group said significant scaling up investment would be required to build the business up to a size "where it would be consistently profitable".
"With limited prospects of further equity capital the company was having difficulty maintaining bank support in light of these factors," it said in a statement to the stock exchange on Friday night.
It said it accepted the CCA bid, "in the absence of a superior offer". The purchase price is in addition to payment to debtors to be assumed at the completion of the acquisition, expected within the next three months.
Warwick White, CCA's managing director for Australian operations, said the acquisition will provide "an opportunity to expand our existing customer relationships and service capabilities and we will also be able to offer a broader array of products and services to existing Palm Springs customers".
Palm Springs will be integrated into CCA's existing bottled water company, Neverfail Springwater Co, which was acquired by CCA in 2003 and is currently Australia's largest home and office water business with 158,000 office and domestic customers compared to 25,000 at Palm Springs.
The number two water delivery firm, Palm Springs reported sales revenue of $18 million in the last 12 months.
The water delivery market is expected to continue growing, given Australia's still low level of market penetration of about 1.5 per cent of households and 15 per cent of businesses - this compares with 10 and 30 per cent in the USA.
The acquisition is subject to approval by the Australian Competition and Consumer Commission.