Monster Goes Vertical, Acquires Longtime Supplier American Fruits & Flavors for $690 Million

Monster-Can1-134x300Monster Beverage has entered into an agreement to purchase American Fruits & Flavors, a move that will see the energy drink giant brings its longtime flavor supplier in-house. The company announced the $690 million acquisition in a press release Tuesday, with Monster chairman and CEO Rodney Sacks calling the official union of the companies “a tremendous step in the continuing evolution of Monster.”

“Not only have we secured the intellectual property of our flagship green energy drink and many of our other key flavors, but we are also partnering with an organization I have personally worked with and known for over 20 years,” Sacks said.

In 2015 Monster accounted for 87 percent of AFF’s revenue. The two companies have worked alongside one another since the mid 90s, with AFF growing at a rate of 8 percent annually over the last four years. Upon the completion of the transaction, which is expected to close in the first quarter of 2016, Monster will also acquire roughly $87 million of adjusted operating income for the 2015 calendar year ending Dec. 31, 2015.

“The transaction is strategic to Monster and and presents a unique opportunity for us to take ownership of our most important flavors. It is also beneficial from a growth perspective and enhances earnings per share,” added Monster vice chairman and president Hilton H. Schlosberg. “ We have taken an important step by integrating our existing and new flavor development and flavor production under the umbrella of our ownership and are confident AFF will act as a catalyst for further success.”

An analyst report from Cowen & Company released Wednesday called the acquisition “a surprise, but a pleasant one,” saying the company’s vertical integration makes Monster a more attractive prospect for an outright purchase from The Coca-Cola Company, which currently owns a 16.7 percent stake in the company. The report also said the deal gives Monster “better innovation competencies” as it looks to expand into additional categories.

Wells Fargo Securities analyst Bonnie Herzog reiterated her longstanding bullish assessment of the company in her report, calling Monster “a differentiated consumer franchise with a long runway of significant long term growth” and that its relationship with Coca-Cola will accelerate its expansion into new markets.

Monster is scheduled to report its 2015 fourth quarter earnings on Thursday.