Dr. Pepper Snapple Group has just announced the acquisition of Bai Brands for $1.7 billion. This is one of the fastest-growing flavored-water companies in the United States. This deal, of course, could find Bai growing massively in the United States, threatening the already struggling soft drink industry led by Coca-Cola and Pepsi. Indeed, data shows that while soda sales remain on the decline, sales for Bia have soared.
In 2015, alone, Bai posted sales of $120 million; this year the company is expected to pass $300 million. Founded only in 2009, the company is also projected to do $425 million in net sales, next year, continuing to demonstrate massive growth.
Dr Pepper Snapple chief executive officer Larry Young explains, “In a relatively short time, Bai has carved out a leadership position in the enhanced-water category and has now extended that success into other fast-growing and profitable categories.”
He also goes on to say, “We’re equally impressed with their innovation pipeline, which will continue to meet the needs of consumers seeking great tasting, low-calorie beverages with natural flavors and no artificial sweeteners.”
Tuesday’s acquisition, of course, will bring the Bai product line directly into Dr Pepper’s packaged goods division. Bai founder Ben Weiss says that he will continue to lead the company even after it has been completely folded into the whole of the Dr. Pepper brand portfolio. They expect this to happen in early 2017.
Stifel analyst Mark Swartzberg comments, “We will see if Bai has staying power. We think the deal terms – $0.03 earnings dilutive next year, then accretive the following, or a preliminary estimated 2017 EBITDA multiple of 14.1x for $1.7 billion cash purchase price – are fair and create for Dr Pepper a contributor not only to short-term growth but potentially sustained added growth.”
Perhaps this is a smart move for Dr. Pepper Snapple and not just because the trend might help to restore the slump in sales. Competitor PepsiCo Inc also said on Tuesday they are in talks to acquire the rest of KeVita (maker of a fermented probiotic and kombucha line of drinks). The company had originally took only a minority stake in KeVita in 2013 but, as PepsiCo spokeswoman Lauren Burns explains, they are definitely in discussion, though she has not released any other details.
She did say, though, “For PepsiCo, the transaction will help to expand the companies health and wellness offerings.”