5-Hour Energy Plans Major Expansion

NOVI, Mich. -- Energy shot brand 5-Hour Energy has sold $450 million in notes due 2019 as it readies major expansion plans.

According to Forbes, the company plans to expand production, extend its product line, export to more international markets and explore strategic acquisitions. The $450 million was increased from the company's original $400 million target.

The expansion comes at a time when Innovation Ventures LLC, parent company of 5-Hour Energy, said sales flattened for the second quarter of 2012. The decline "was primarily due to a decrease in net sales of $4.6 million to mass merchandisers," according to offering documents obtained by Forbes. However, the documents cite Mintel's projection that U.S. energy shot sales will grow to $2.5 billion by 2016 -- nearly doubling sales of $1.3 billion last year, the report added.

Company spokeswoman Elaine Lutz acknowledged the offering documents but declined to answer questions about them. "Innovation Ventures has just completed a successful private placement of senior secured notes," she said in an e-mail to Forbes. "We really have nothing to add."

5-Hour Energy owns about 90 percent of the market for energy shots. The company generated net sales of $595.8 million last year, is selling approximately 1.4 million two-ounce bottles of energy shots a day, and saw gross profit margin that averaged 80 percent from 2007 through 2011, the news outlet said.

Other beverage companies have tried to enter the market, but none has seen the success of 5-Hour Energy. The offering documents state that Innovation Ventures believes "there is substantial opportunity to increase consumer conversion," and describes a number of ways in which the company intends to build on 5-Hour Energy's dominance, in part from the proceeds from the notes sale.

For one thing, Forbes reported, it plans to "broaden the scope of our marketing to reach more diverse demographics." Over the past four years, the brand invested about $395 million in marketing the 5-Hour Energy product line, the document said, most of it in TV commercials.

5-Hour Energy is currently available in Canada, the Netherlands, the United Kingdom, Ireland and Spain. The company plans nationwide launches in Mexico, Portugal, Panama and South Korea. It also plans to pursue international expansion through selective acquisitions and through partnerships and joint ventures with established distributors, "which may include a major consumer packaged-goods company," according to the report.

The offering documents also revealed that Manoj Bhargava -- founder of the company -- intends to introduce new products and brands for the first time outside the 5-Hour Energy brand and the shot lineup. They include the next product, a low-calorie bar. The company expects to begin test marketing this new product by the end of this year, the document said, and to launch it in the first quarter of 2013, he news outlet said. The company plans to spend up to $120 million on the launch beginning in the first quarter of next year.

Bhargava also plans to build a third manufacturing and distribution facility. The company will invest about $80 million in the construction of a new 500,000-square-foot in Indiana that will open by the middle of next year.