Shares of New Age Beverages (NBEV) had jumped 8.6% as of 3:41 p.m. EST on Monday after rising as much as 15.6% earlier in the day. The big move came after the company announced that it was acquiring Morinda Holdings, a Utah-based company specializing in health beverages, for $85 million -- $75 million in cash and $10 million in New Age stock.
A combination of New Age Beverages and Morinda definitely changes the dynamics for both companies. The resulting company will rank as the 40th largest nonalcoholic beverage company in the world with $300 million in annual net revenue, according to New Age.
The big advantage for the deal is that it gives New Age Beverages access to 60 countries where Morinda currently operates -- the most important being China and Japan. New Age especially hopes to distribute its new cannabidiol (CBD) beverages using Morinda's network.
Morinda's business model focuses on direct-to-consumer and internet sales. The company works with more than 160,000 independent distributors across the world. Integrating New Age Beverages' products into the offerings for these distributors shouldn't be too difficult.
The company thinks that the acquisition of Morinda will achieve more than $10 million of synergies over the next 12 to 18 months. These include an immediate savings of over $2 million from combining purchasing of raw and packaging materials.
This transaction should close in late December. It's not likely that there will be any significant obstacles for the acquisition to go through. Overall, the buyout of Morinda appears to be one that will position New Age Beverages for greater global success.
The big thing for investors to watch, though, is the status of the 2018 Farm Bill. This legislation, which would legalize hemp in the U.S., appears to now be on track to potentially become law. If it does, New Age Beverages should have a tremendous opportunity for its CBD-infused beverages in the U.S., which could be a $22 billion market by 2022.