MERGENER

STRICTLY CONFIDENTIAL

Mineral Water Enterprises in Spain

Essential Facts

Disclaimer
__
The information contained in this confidential document ("Presentation") has been prepared by Mergener & Partners. It has not been fully verified and is subject to
material updating, revision and further amendment.
While the information contained herein has been prepared in good faith, Mergener has not given or have authority to give, any representations or warranties (express
or implied) as to, or in relation to, the accuracy, reliability or completeness of the information in this Presentation, or any revision thereof, or of any other written or oral
information made or to be made available to any interested party or its advisers (all such information being referred to as "Information") and liability therefore is
expressly disclaimed. Accordingly, neither Mergener nor any of his Partners, agents, employees or advisers take any responsibility for, or will accept any liability
whether direct or indirect,express or implied, contractual, tortious, statutory or otherwise, in respect of the accuracy or completeness of the Information or for any of
the opinions contained herein or for any errors, omissions or misstatements or for any loss, howsoever arising, from the use of this Presentation.

March 2010
 [yuanni] [printed: 03/14/05 17:59] [saved: 03/14/05 18:01] S:\intc\M&A\Projects\2005\Seth Conference\Merrill Corp Presentation_ppt.ppt

Foreword
Project History

♦ The project was initiated by Herbert Mergener, a German national who has lived and worked in Spain for
over 20 years as a naturopath
♦ During his tenure Mr. Mergener has gathered considerable experience in patient treatment with natural
remedies and means, in particular with mineral water from Spanish sources
♦ After retirement some former patients and friends of Mr. Mergener, the owners of the mineral water
enterprises, have approached him with requests to help find buyers for their property
♦ In 2007 Mr. Mergener commenced this activity and performs it on a regular basis since then
♦ Two mineral water companies have successfully changed hands with help of Mr. Mergener
♦ Current portfolio of Spanish mineral sources and plants offered for sale comprises 12 objects, recently a
Portuguese enterprise was added hereto

MERGENER 1
 [yuanni] [printed: 03/14/05 17:59] [saved: 03/14/05 18:01] S:\intc\M&A\Projects\2005\Seth Conference\Merrill Corp Presentation_ppt.ppt

Table of Contents

Foreword 1
SECTION 1 The Offer 3
Location Map
Enterprises & Sources: Basic Information
Spanish Bottled Water Market
Economics of Bottled Water Business
SECTION 2 Example: Mineral Water Enterprise North-East of Spain 10
Overview
Growth, Profitability, and Valuation
Pictures
SECTION 3 Possible Strategy 15
Growth & Expansion: Viable Options
SECTION 4 Further Steps and Contact 17
Appendix 20

MERGENER 2
 SECTION 1

The Offer

MERGENER
 [yuanni] [printed: 03/14/05 17:59] [saved: 03/14/05 18:01] S:\intc\M&A\Projects\2005\Seth Conference\Merrill Corp Presentation_ppt.ppt

Location Map
7 bottling water enterprises and 5 water wells throughout the whole Spain + 1 water plant in Portugal:

Santiago
Gijon

6 9
Porto
Bilbao

PORTUGAL 4/5
Pamplona Andorra

Madrid Zaragoza
Lissabon
13 1 2
3 Barcelona
SPAIN

Valencia Menorca

Ibiza
8 10 Palma

Granada
7 Mallorca

Cadiz
Malaga
11 12 Formentera

Gibraltar

Full-fledged Water Enterprises Licensed Mineral Water Wells

MERGENER 4
 [yuanni] [printed: 03/14/05 17:59] [saved: 03/14/05 18:01] S:\intc\M&A\Projects\2005\Seth Conference\Merrill Corp Presentation_ppt.ppt

Bottled Water Enterprises & Mineral Water Sources: Basic Information

The following objects are offered for sale
Capacity
Land # of Licensed PET Stand- Price in
Plant/ Area, Water million Volume, Bottle alone the
# Well Location hectare Sources L/Sec. L/Year Mil. L/Y Plant Price* Package
1 P Madrid 4,0 2 20 631 158 YES 10,2 € 9,7 €
2 P Madrid 5,0 5 5 170 unlimited YES 14,6 € 13,9 €
3 P Barcelona 1,5 2 5 170 170 YES 7,7 € 7,3 €
4 P North-East 0,5 1 300 9461 unlimited YES 23,0 € 21,9 €
5 P North-East 2,4 2 15 473 unlimited YES 16,6 € 15,8 €
6 P North-West 23,0 3 12 378 202 YES 10,3 € 9,8 €
7 P Valencia 3,0 2 167 5267 186 YES 15,0 € 14,3 €
8 W Sevilla 1,2 1 35 1104 158 - 6,8 € 6,5 €
9 W San Sebastian 45,0 5 29 915 158 - 16,8 € 16,0 €
10 W Jaen 42,0 6 170 5361 158 - 6,3 € 6,0 €
11 W Granada 21,0 1 10 315 n.a. - 6,3 € 6,0 €
12 W Sierra Nevada 7,0 6 29 915 190 - 15,6 € 14,9 €
13 P Portugal 29,0 5 54 1703 202 YES 12,1 € 11,5 €
Total: 161,3 € 153,6 €

♦ “Price in the Package” means that the acquirer buys at least two objects from the portfolio.
♦ Enterprises 4 and 5 belong to one owner, therefore they are bundled and can be acquired only together.
♦ The price for the stand-alone object #4+5 is €23,0+€16.6 m, or €39.6 m, and it can be reduced only in case
if at least one more object from the package is purchased additionally.
♦ The same pertains to objects #6 and #13.

MERGENER 5
 [yuanni] [printed: 03/14/05 17:59] [saved: 03/14/05 18:01] S:\intc\M&A\Projects\2005\Seth Conference\Merrill Corp Presentation_ppt.ppt

Spanish Bottled Water Market

Market

♦ The population of Spain is 46.7 million

people
♦ Population density: 90 people/sq. km
♦ Per Capita consumption of bottled water In
Spain was 146.5 liters in 2005: the second
highest in Europe and the fourth highest in
the world
♦ Total size of Spanish Bottled water market
is about 6.8 bn liters in terms of volume
and 1.7 bn Euros in terms of sales
♦ The average price per Liter of bottled water
is € 0.25
♦ The Market grows at 4-5% rate annually
♦ Still water has more than 95% of the
market, sparkling water has just 4.5%.
That was never popular in Spain and
consumer preferences are stable in this
respect

MERGENER 6
 [yuanni] [printed: 03/14/05 17:59] [saved: 03/14/05 18:01] S:\intc\M&A\Projects\2005\Seth Conference\Merrill Corp Presentation_ppt.ppt

Spanish Bottled Water Market

Structure and Competitive Landscape

♦ There are about 130 enterprises on the Spanish market of bottled water
1,5 L 1,0 L
♦ Premium brands commence higher prices, e.g.: LANJARON 0,47 € 0,31 €
SOLAN DE CABRAS 0,61 € 0,41 €
EVIAN ( France ) 1,15 € 0,77 €

Market shares within discounter chains in Spain Breakdown by Type of Sales Channel

Source: IRI España, Infoscan

MERGENER 7
 [yuanni] [printed: 03/14/05 17:59] [saved: 03/14/05 18:01] S:\intc\M&A\Projects\2005\Seth Conference\Merrill Corp Presentation_ppt.ppt

Economics of Bottled Water Business

Stylized Facts

♦ The area around the water plant of 100 km radius has the size of 31,400
sq. km
♦ Average population of this area is 2.8 million people (assuming the same
density for entire Spain: 90 people/km2)
100 km
X ♦ Bottled water consumption on this area is 410 million liters
200 km ♦ Cost of transportation of 1.5 L bottle inside the 100 km circle is 0.014 €
♦ The next circle of proximity of 100 km has a three times larger area: 94,200
km2 and is populated by 8.5 million people who consume 1.2 bn Liters of
300 km bottled water a year.
♦ Cost of transportation of 1.5 L bottle inside the 200 km circle is 0.018 €
♦ The circle lying between 200 and 300 km around the plant has the area of
Distance, Transportation Cost, € 157,000 sq. km and is populated by 14.1 million people who consume
km Per 1.5 L Per 1 L around 2.1 bn liters of bottled water
100 0,0140 0,0093
200 0,0175 0,0117
♦ The cost of reaching those consumers is 0.021 € per 1.5 L bottle
300 0,0210 0,0140
400 0,0245 0,0163
500 0,0280 0,0187 ♦ The most profitable area is the surrounding 300 km, but delivering up
to 500 km is economically possible as well
Source: Client

MERGENER 8
 [yuanni] [printed: 03/14/05 17:59] [saved: 03/14/05 18:01] S:\intc\M&A\Projects\2005\Seth Conference\Merrill Corp Presentation_ppt.ppt

Economics of Bottled Water Business

♦ Under assumption that the off-take price is 9 cent/Liter we obtain the following figures:

Circle Bottled Water Market Sales Transport

Radius Area, Average Consumption, Share Sales, mill. Price / 1 COGS per Expense EBIT EBIT Sales, EBIT,
2
km Population mill. Liters (assumed) L L 1L per 1 L per 1 L Margin M€ M€
0-100 km 31 400 2 826 000 414 30% 124 0,09 0,06 0,0093 0,0207 23,0% 11,18 2,57
100-200 km 94 200 8 478 000 1 242 20% 248 0,09 0,06 0,0117 0,0183 20,4% 22,36 4,55
200-300 km 157 000 14 130 000 2 070 10% 207 0,09 0,06 0,0140 0,0160 17,8% 18,63 3,31
Subtotal (0-300km) 282 600 25 434 000 3 726 580 0,09 52 10
300-400 km 219 800 19 782 000 2 898 7% 203 0,09 0,06 0,0163 0,0137 15,2% 18,26 2,77
400-500 km 282 600 25 434 000 3 726 5% 186 0,09 0,06 0,0187 0,0113 12,6% 16,77 2,11
Total (0-500km) 785 000 70 650 000 10 350 969 87 15

♦ If we assume that the price per 1 L increases by 1 cent with each 100 km of distance, the EBIT margin
shows a very strong growth despite higher transport expenses
♦ Roughly, each cent added on the sale price increases EBIT margin by 5%

Circle Bottled Water Market Sales Transport

Radius Area, Average Consumption, Share Sales, mill. Price / 1 COGS per Expense EBIT EBIT Sales, EBIT,
2
km Population mill. Liters (assumed) L L 1L per 1 L per 1 L Margin M€ M€
0-100 km 31 400 2 826 000 414 30% 124 0,09 0,06 0,0093 0,0207 23,0% 11,18 2,57
100-200 km 94 200 8 478 000 1 242 20% 248 0,10 0,06 0,0117 0,0283 28,3% 24,84 7,04
200-300 km 157 000 14 130 000 2 070 10% 207 0,11 0,06 0,0140 0,0360 32,7% 22,77 7,45
Subtotal (0-300km) 282 600 25 434 000 3 726 580 59 17
300-400 km 219 800 19 782 000 2 898 7% 203 0,12 0,06 0,0163 0,0437 36,4% 24,34 8,86
400-500 km 282 600 25 434 000 3 726 5% 186 0,13 0,06 0,0187 0,0513 39,5% 24,22 9,56
Total (0-500km) 785 000 70 650 000 10 350 969 107 35

♦ Hence, Branding and Marketing are the keys to profitability

MERGENER 9
 SECTION 2

Example: Mineral Water Enterprise North-East

MERGENER
 [yuanni] [printed: 03/14/05 17:59] [saved: 03/14/05 18:01] S:\intc\M&A\Projects\2005\Seth Conference\Merrill Corp Presentation_ppt.ppt

Overview
History. Water quality
Water occurrence, license, technology, bottling line equipment

♦ The history of the enterprise starts in XVII Century, when the water sources became very popular for curing
purposes, the place became a famous Spanish Spa Town
♦ In 1920 Spanish Nobel laureate in Medicine Santiago Ramón y Cajal has recommended the water from the
North-Eastern sources for curing various diseases
♦ Today the Private Enterprise has three water sources and two plants
♦ The water quality is recognized as one of the best (significantly better than that of Vittel or Evian) in Spain
♦ Further interesting detail is the water occurrence which is outstanding:
♦ The first (old) plant pours 300 Liters per Second which sum up to 9.5 billion liters per year (1.5 times the
entire Spanish bottled water market)
♦ The enterprise possesses an “unlimited” license (rare case in Spain), which means it can take and sale
unlimited quantity of water.
♦ The bottling line equipment is 5 years old at maximum, the equipment of the newly acquired second plant is
brand new
♦ Long-term off-take relationships with large discounter chains like DIA, Corte Ingles, etc., negotiations with
the largest Spanish discounter chain MERCADONA are in progress
♦ ________________________________________________________________________________________________________

♦ The decision to sale was triggered by the death of the old owner. His children (legal heirs) have no
consent regarding the future of the business and want a complete sell-off
♦ Incumbent General Manager who is running the business for 18 years is willing to stay and work with new
owners
MERGENER 11
 [yuanni] [printed: 03/14/05 17:59] [saved: 03/14/05 18:01] S:\intc\M&A\Projects\2005\Seth Conference\Merrill Corp Presentation_ppt.ppt

Growth, Profitability
♦ The enterprise has been showing a modest growth with turnover under €5 M until 2007
♦ Organic growth was constrained by the fact that big discounter chains require producers to have at least
two water supply sources
♦ In 2007 another plant in the vicinity with two additional water sources was acquired
♦ That boosted sales by more than 100% and gave the needed momentum for further aggressive growth
♦ According to the Management the turnover for 2010 is planned at €24 - €25 Million (30-40% growth)

2006 2007 2008 2009E

Total Sales € 4 778 820 € 6 810 261 € 14 764 873 € 17 780 104
Growth YoY n.a. 43% 117% 20%
Cost of materials -2 224 440 -3 455 132 -7 860 486 -9 581 628
in% of Sales 51% 54% 72% 70%
Gross Profit 2 554 380 3 355 129 6 904 388 8 198 477
Gross Margin 53% 49% 47% 46%
Personell -771 647,42 -736 815,21 -1 269 177,10 -1 459 005,28
SG&A -1 349 626,03 -1 898 767,29 -4 079 200,73 -4 319 983,68

EBITDA € 433 106 € 719 546 € 1 556 010 € 2 419 488

EBITDA margin 9,1% 10,6% 10,5% 13,6%

♦ Due to the private nature of the business it is highly probable that the accounting profit is “optimized”
with the purpose of diminishing tax obligations;
♦ For obtaining real profitability metrics, a thorough financial analysis and detailed discussions with
management are needed
MERGENER 12
 [yuanni] [printed: 03/14/05 17:59] [saved: 03/14/05 18:01] S:\intc\M&A\Projects\2005\Seth Conference\Merrill Corp Presentation_ppt.ppt

Mineral Water Bottling Enterprise Valuation

♦ Mineral Water business on the Iberian Peninsula is typically quite profitable, the costs are well controlled,
and margins are high enough to justify 2x-3x multiples to Sales

Enterprise Multiple of
Date Land Target Acquirer Seller
Value, €M Sales

July '07 UK Sangs (Banff) Ltd. Sangs (Banff) Ltd (MBI Vehicle) ORESA Ventures N.V. 14.8 0.2x
May '07 Romania La Fantana (90% stake) Innova Capital Sp.z.o.o. n.a. 38.9 2.8x
May'07 USA Strathmore Mineral Water Co. Ltd. A.G. Barr Plc. Constellation Brands Inc. 22.0 1.0x
January '05 Italy Italaquae SpA L.G.R. Holding SpA Group Danone S.A. 137.5 0.9x
January '03 Canada Sparkling Spring Water Holdings Ltd. Group Danone SA n.a. 297.0 3.2x
July '02 Russia Saint Springs Nestle Waters SA n.a. 49.8 2.5x
September '02 Switzerland Valser Mineralquellen AG Coca-Cola Hellenic Bottling Co. Hess Group 136.0 1.8x
March '02 Portugal Vidago Melgaco e Pedras Salgacas Unicer Uniao Cervejeira SA Jeronimo Martins S.G.P.S 145.0 3.3x
February '02 Spain Fuente Liviana Damm SA n.a. 57.1 2.0x
July '01 Spain Balneario de Aguas de Solan de Cabras Pozo Family n.a. 141.4 3.9x

Maximum 3.9x
Minimum 0.2x
Median 2.2x

Spanish and Portuguese Transactions:

Maximum 3.9x
Minimum 2.0x
Median 3.3x

Source: Mergermarket

♦ Each particular enterprise / Project should be valuated with Discounted Cash Flow approach
♦ For the start comparable transactions serve as a good reference here

MERGENER 13
 [yuanni] [printed: 03/14/05 17:59] [saved: 03/14/05 18:01] S:\intc\M&A\Projects\2005\Seth Conference\Merrill Corp Presentation_ppt.ppt

Pictures

Surrounding Mountains Bottling Line Water processing equipment

Main water source Plenty of water for Spain and neighboring countries

MERGENER 14
 SECTION 3

Possible Strategy

MERGENER
 [yuanni] [printed: 03/14/05 17:59] [saved: 03/14/05 18:01] S:\intc\M&A\Projects\2005\Seth Conference\Merrill Corp Presentation_ppt.ppt

Entry, Growth and Expansion Strategy

Viable Options

♦ 75% of all bottled water is being sold via discount department stores (see slide #7)
♦ Discounters which normally have a country wide coverage prefer to source “from one hand”
♦ Entry into the Discounter lists is possible when you have two or more water sources / plants
♦ Acquisition of the two plants in the North-East would give a good start:
♦ Established Brand Name
♦ Strong growth and profitability
♦ Existing long-term off-take relationships with Grandes Almacenes (Large Discount Department Stores)

♦ Further expansion can be either through organic growth (upside potential of the existing enterprises is at
least 100%), new acquisitions (see the next slide) or both

♦ There is a potential and rationale (see the slide # 11) for developing of a premium Brand
♦ Combined with delivering to drugstores, pharmacies and traditional (small) stores that can create a highly
profitable niche segment
♦ Expansion into adjacent market segments, like flavored mineral water, should be explored as well

MERGENER 16
 [yuanni] [printed: 03/14/05 17:59] [saved: 03/14/05 18:01] S:\intc\M&A\Projects\2005\Seth Conference\Merrill Corp Presentation_ppt.ppt

Strategic Options: Market Consolidation

9
6
4/5

13 1 2

7
8 10
12
100 km
11
200 km

♦ Acquisition of 6 Objects from the Portfolio would give a country-wide coverage (+Portugal) enabling
capturing of 20%+ market share

MERGENER 17
 SECTION 4

Further Steps

MERGENER
 [yuanni] [printed: 03/14/05 17:59] [saved: 03/14/05 18:01] S:\intc\M&A\Projects\2005\Seth Conference\Merrill Corp Presentation_ppt.ppt

Acquisition Process: Documents and Actions

♦ NCNDA – signed by now

♦ Preliminary LOI with request of further information about the object(s) of interest
♦ Meeting between the interested party, the owner(s) and Mergener +Visit to enterprise(s)/licensed
well(s)
♦ Decision: no-or-go
If go ->
♦ LOI: price indication, purchase & sale agreement terms
♦ Due diligence
♦ Contracts/(Financing)/Deal Closure
♦ Hand-over, post-acquisition support

MERGENER 19
 [yuanni] [printed: 03/14/05 17:59] [saved: 03/14/05 18:01] S:\intc\M&A\Projects\2005\Seth Conference\Merrill Corp Presentation_ppt.ppt

Contact Information

Mr. Herbert Mergener

Krainstr. 6
54340 Klüsserath (Germany)
Phone/Fax +49 - 6507-938666
Mobile +49 - 171 -1662409
herbertmergener@aol.com

MERGENER 20
 Appendix

The List of Mineral Water Enterprises in Spain

MERGENER
 [yuanni] [printed: 03/14/05 17:59] [saved: 03/14/05 18:01] S:\intc\M&A\Projects\2005\Seth Conference\Merrill Corp Presentation_ppt.ppt

MERGENER 22