The maker of Canada Dry and Dr Pepper sodas said Tuesday it will spend $1.7 billion in cash to acquire the entire portfolio of Bai Brands, which mostly makes flavored still water filled with antioxidants, an increasingly important niche inside of the broader growing bottled water market. Not only will Bai Brands give Dr Pepper Snapple Group greater access to all things flavored still water, but it will allow it to capture growth from the brand's newer ventures such as tea and flavored sparkling beverages.
Such a deal for Bai Brands isn't a shocker.
Dr Pepper Snapple Group already distributes the company's drinks under an agreement inked in 2013. The growing distribution channels for Bai Brands has helped to pump up sales in Dr Pepper Snapple's non-carbonated beverage segment.
"We like to partner with brands that are in the nascent stage, and see the growth of the business," Dr Pepper Snapple Group CEO Larry Young said on a conference call.
The relationship between the two companies closely resembles the one between Coca-Cola and energy drink maker Monster Beverage.
Coke took a 16.7% stake in Monster back in late 2014 and began to distribute Monster's various energy drinks through its vast bottling network. The deal has been seen as a win for both parties.
From a Coke perspective, it has been able to run a portfolio of hot-selling carbonated products through its vast distribution network. Bottlers love that. Moreover, the company was basically able to shut out others such as PepsiCo (PEP) from swooping in and buying all of Monster. Not to mention that the value of Coke's stake in Monster has soared -- Monster's stock has surged about 95% from around the time rumors of Coke's stake swirled in early August 2014.
From a Monster perspective, it has likely learned how a real carbonated beverage operation should run, which has probably freed up time for management to focus more on product innovation and marketing.
"Well, we made an initial investment in a partnership and we are very happy with it. The Monster portfolio has been expanded internationally, and I think it's a very strong story and we are both doing very well out of it," Coke's Chief Operating Officer James Quincey told TheStreet in an interview earlier this year.
Although a deal for Monster would be very expensive for Coke given the run-up in its stock price, there are several reasons for this transaction to get done.
If Coca-Cola's deals team needs some further inspiration it may also want to check the news headlines on Pepsi. On Tuesday, the beverage and snack giant reportedly plunked down $200 million to acquire upstart kombucha drink maker KeVita.