Food & Beverage

Smart water company Essentia, which has a proprietary water ionization process, puts itself up for sale

Key Points
  • Essentia hires Credit Suisse to lead a sale of the company.
  • The brand has roughly $100 million in annual sales and could attract interest from large consumer companies like Pepsi or Nestle.
  • It is part of the hot "functional water" category, with competitors like Core Hydration and Lifewtr.
Source: Essentia Water

Premium water company Essentia has hired an investment bank to run an auction for the company, sources familiar with the matter told CNBC, and it could fetch $500 million or more in a sale.

The water brand, which has a proprietary ionization process it claims provides better hydration, has roughly $100 million in revenue, the people said.

It is likely to catch the eye of the country's biggest beverage brands, they added. Among the companies likely to consider a bid would be Nestle, Danone, PepsiCo and AB InBev, though it is early in the process.

Companies similar to Essentia are often valued at four to six times revenue, said people familiar with the business. The company is working with Credit Suisse for the sale, the people said.

Essentia and Credit Suisse declined to comment.

Essentia is the latest upstart beverage brand to put itself up for sale, hoping to take advantage of the big prices large corporations have been willing to shell out for growth they can't create on their own.

Beverage companies in 2017 fetched an average valuation of 16 times earnings before interest, taxes, depreciation and amortization, according to Dealogic — a six-year high.

Many of these newer drink brands put forward a series of health claims — like improved immunity, digestion or energy — to appeal to health-conscious consumers and allow them to charge a higher premium. Unlike their sports drink predecessors, most are low in, or free of, sugar.

Bai Brands, which sweetens its drinks with antioxidant-laden fruit juices, sold to Dr Pepper Snapple Group in 2017 for $1.7 billion. KeVita, a kombucha drink that claims to improve digestive health, sold to PespiCo in 2016 for an undisclosed amount.

Still, the upstart beverage space has become increasingly competitive. The number of investors backing food and beverage start-ups has tripled in four years, according to CB Insights. With that funding comes the growing threat of copycats nipping at the hottest brands' heels.

Founded by CEO Ken Uptain in 1998, Essentia was one of the earlier water drinks to claim special health benefits. Its proprietary ionization process removes acidic ions, making its drinks higher alkaline, which the company claims makes it better at rehydration.

Water brands that tout special attributes like low acidity or added electrolytes have seen a resurgence in recent years amid the popularity of Coca-Cola-owned Smartwater and Core Hydration, in which Dr Pepper is an investor.

Sales in the category grew at a rate of roughly 6 percent from 2016 to 2017, according to Euromonitor. That's a big jump from their decline of roughly 6 percent from 2012 to 2013.

In response to this upswing, PepsiCo last year launched premium water brand Lifewtr.

Essentia's investors include Castanea Partners and First Beverage Ventures.