Monster to Acquire American Fruits & Flavors

CORONA, Calif. — Monster Beverage Corp. is bringing its primary flavor supplier in-house. 

The move is the result of Monster's definitive agreement to acquire American Fruits & Flavors (AFF), a flavor supplier and long-time business partner.

The deal secures the intellectual property of Monster's most important flavors in perpetuity, and further enhances its flavor development and global flavor footprint capabilities, according to the company.

"It is with great pleasure we announce the acquisition of AFF as it marks a tremendous step in the continuing evolution of Monster," said Rodney C. Sacks, chairman and CEO 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."

"This transaction provides Monster a unique opportunity to leverage new flavor technologies and differentiate ourselves from our largest competitors, who do not have these capabilities," he added.

Under the terms of the agreement, Monster will purchase AFF for $690 million. Upon closing the transaction, Monster will acquire approximately $87 million of adjusted operating income for the 12 months ended Dec. 31, 2015. 

The transaction, which is expected to close in the first quarter, is subject to customary closing conditions.

"It is important to acknowledge this transaction represents much more than the acquisition of AFF," said Fred Farago, founder and president of AFF. "We view [the] announcement as the integration of two companies that have enjoyed a tremendously symbiotic relationship over many years. We look forward to joining the highly respected and experienced Monster team to help the company further enhance its position as a global leader in the industry."

Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities LLC, stated that this acquisition is expected to drive increased flexibility on innovation and greater control over Monster's supply chain, which could accelerate growth through research and development, improve margins, and reduce supply chain risk.

The two companies have worked closely together since the mid-1990s in developing new products and taste profiles. AFF has grown at an approximately 8-percent organic revenue CAGR over the last four years, with Monster as its largest customer and representing approximately 87 percent of AFF's revenues in 2015. 

The acquisition is expected to be accretive to Monster's earnings during 2016.

Barclays served as financial advisor and Jones Day served as legal advisor to Monster. Lazard served as financial advisor to AFF and Sheppard, Mullin, Richter & Hampton LLP served as its legal advisor.

Based in Corona, Monster's subsidiaries develop and market energy drinks, including Monster Energy energy drinks, Monster Energy Extra Strength Nitrous Technology energy drinks, Monster Rehab non-carbonated energy drinks with electrolytes, NOS energy drinks, and Full Throttle energy drinks.

AFF is headquartered in Pacoima, Calif., and Los Angeles.

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