Deep Rock's turnaround: water icon's investors set sights on single-bottle market.

Cash-rich equity-investment firms nationwide have come to be known for their collective "get, strip and flip" acquisition strategies, but the pair of firms that purchased Deep Rock Water Co. in 2004 have done anything but that.

Minnesota's Norwest Equity Partners and locally based M2P Capital have treated 110-year-old Deep Rock, located in the historic Five Points area near downtown Denver, as if their investors want the company to be still selling artesian water drawn from its on-premises well for another century to come.

"I think one of the things with our private-equity partners is they take a little more conservative approach," Deep Rock CEO J. Ronald Frump said. "They look at the longer-term relationship. Obviously, like any business and any investment, it's a value proposition, and so the way to do that is to build it out, both internally and externally. That's our strategy as we go forward."

Frump came to Deep Rock in March last year, when he was recruited by the equity partners to turn the company around. Deep Rock primarily provides five-gallon bottles of drinking water to homes and corporate and institutional offices around 12 states in the West and Midwest.

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Frump was familiar with Deep Rock and its route-based distribution system because he had worked in Colorado both for Leprino Foods and for Minnesota-based Schwan's Food Co., the ice-cream-truck purveyor of frozen foods. He came back to the state from Nebraska, where he was CEO of Omaha Steaks, also a frozen-food company.

So returning to a brand-name, delivered-product company was no problem for Frump. What he found here in terms of old-world business operations, however, presented bigger problems than he had anticipated.

Auditing and accounting systems at Deep Rock were practically defunct, Frump said. Information technology was practically nonexistent, and the motor-vehicle fleet, both here and at the company's Glenwood-Inglewood brand manufacturing plant in Minnesota, was decaying and in disrepair.

His first task as CEO was to re-establish a business foundation across the entire company, he said. The chore took longer than he had hoped, but his equity partners and board of directors gave him time, capital and the moral support to pull off the transformation without cutting too much staff along the way, he said.

The company currently has about 200 employees, and posts about $40 million in annual sales. Frump says that is the stable condition he has strived to achieve.

Deep Rock now is poised to launch an acquisition strategy originally planned last year that will put it more deeply into the single-bottle water market, where mega-bottlers like PepsiCo, Coca-Cola and Nestle now dominate.

"Retail obviously is where the rapid growth is occurring," Frump said. "It continues to grow by double digits every year, and I think we will be a part of that."

But growth on that side of the business will mostly come from added retail operations of his targeted acquisitions, he said.

"In any acquisition, if you have a reasonable regional brand, you'll add to the retail side of the current base," he said.

The target of the acquisition will still be the geographic niche that grows the large-bottle delivery side of Deep Rock's trade, said Frump, who sees good growth prospects in that segment of the industry throughout the "inland western empire" he calls Deep Rock's customer-service area. With a new fleet of vehicles and new technology to boost productivity, he expects Deep Rock to remain an icon of the West's water industry.

But the company's investors will be looking for an exit strategy.

"I think that's kind of understood in a private-equity situation," he said. "That there is a point of time where they would like to get their money."

In Frump's mind, the most likely exit could be a buyout of Deep Rock by one of the large, national bottled-water distributors.

"Certainly, it could be a strategic acquisition for one of the larger water companies in the country," he said.

Even so, a new owner would be just Deep Rock's fifth change of ownership in more than a century.