Dr Pepper Snapple Takes Stake in Sports Drink Brand
PLANO, Texas — Dr Pepper Snapple Group is investing $20 million for an 11.7-percent stake in BA Sports Nutrition, the owner of the BODYARMOR brand.
The move follows the recent trend in the industry to invest in faster-growing categories to offset declines in carbonated soft drinks (CSDs), according to Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities LLC.
The stake implies a $170-million valuation, she explained.
BODYARMOR was founded by Mike Repole (co-founder of vitaminwater) and Lance Collins (founder of Fuze) and has been an Allied Brand in the Dr Pepper Snapple system since 2013. Last year, BODYARMOR had approximately $30 million in sales, which is expected to pass $50 million this year.
"As Dr Pepper Snapple ramps up distribution of BODYARMOR in its direct store delivery network next year and expands the brand from 25,000 stores to 50,000 stores nationwide, we believe this brand could approach $100 million in retail sales in 2016," Herzog said. "We continue to believe that [its] strategy to diversify away from its core carbonated soft drink brands into faster growing categories is the right long-term strategy."
In recent Wells Fargo Securities' Beverage Buzz surveys, many retailers report Allied Brands products like Bai5 and BODYARMOR "continue to sell better than expected," she added.
"We are encouraged by Dr Pepper Snapple's numerous partnerships and investments in rapidly growing brands within its Allied Brands stable which includes BODYARMOR, Big Red, FIJI Water, Vita Coco, Bai Brands, Neuro beverages, SunnyD, and HYDRIVE energy drinks," Herzog said. "We expect that [the company] will continue to leverage these growing brands to help support improved volume growth and offset overall weakness in the CSD category."
According to Herzog, Dr Pepper Snapple signed an agreement to invest $15 million in a minority equity stake of 3 percent in Bai Brands, implying a $500-million valuation. This came nearly two years after the Plano-based beverage giant signed a national distribution deal with Bai Brands, which helped drive Bai Brands' strong growth.
In fact, wholesale revenue was $50 million in 2014 and is projected to reach $125 million this year, which Wells Fargo Securities estimates equates to $200-$300 million in retail sales.
"Given the strong trajectory that Bai Brands has seen within Dr Pepper Snapple's distribution network, we believe [its] investment and focus on BA Sports Nutrition should help accelerate growth of BODYARMOR," she added.