Celsius Holdings (CELH 2.12%) makes calorie-burning energy drinks and it's often called a "baby Monster" -- a reference to rival energy drink maker Monster Beverage (MNST 0.41%). Investors have good reason to want to look for the next Monster. After all, Monster stock is up more than 127,000% over the past 20 years.
Celsius is living up to the hype. Its stock is up more than 3,000% over the past five years. But more than that, the company grew revenue over 1,500% during this time, showing just how quickly it's catching on with consumers.
Considering the substantial momentum Celsius is gaining, perhaps it's not surprising that Monster is making a big reactionary move. According to Monster, it's agreed to acquire Vital Pharmaceuticals -- maker of Bang energy drinks -- out of bankruptcy in a deal that Bloomberg says could be worth $362 million.
Investors may look past this news -- after all, how important is Bang if it went bankrupt? However, there's plenty more to this story and I believe that Bang could be an important acquisition for Monster. Here's why.
Bang once enjoyed Celsius-like growth
In August 2022, Celsius signed a long-term partnership deal with PepsiCo. This deal infused Celsius with $550 million in cash (the company only had $60 million of its own cash at the time) and gave it access to Pepsi's world-class distribution network. In other words, Celsius got access to growth via the distribution network and simultaneously received resources to ramp up production.
To be clear, Celsius was growing before Pepsi entered the picture. But its growth rate recently reaccelerated and I believe Pepsi should be credited. It's hard to maintain growth at the scale Celsius is reaching.
CELH Revenue (TTM) data by YCharts
Celsius is in a privileged position thanks to its partnership with Pepsi. And it's a privileged position that Bang once enjoyed. Had that business relationship not soured, then perhaps Bang would still be growing as Celsius is now.
According to Bang, it had almost 10% market share in the U.S. energy drink space in early 2020, making it the third-largest player in the space behind Red Bull and Monster. At that time, Bang switched from its distribution network to that of Pepsi. Bang's then-CEO Jack Owoc at the time said that the partnership would be "one for the beverage history books." And that was true, but not in the way that Owoc thought.
Bang switched to Pepsi's distribution network in April 2020, then announced it "fired" Pepsi in October of that year -- that might be the shortest partnership ever. However, Pepsi disputed Bang's ability to move on from the partnership. And the dispute wasn't resolved until June 2022. Shortly thereafter, Pepsi teamed up with Celsius.
Bang said its market share went down with Pepsi, which is why it moved on from the partnership. However, switching to and from Pepsi's network in such a short time period caused a lot of disruption to its business and came at a great cost. This led to the company filing for bankruptcy protection in October 2022.
Bang is a popular and high-growth brand. Had its relationship with Pepsi not become so complicated, then perhaps it would have never gone bankrupt.
Why Monster wants Bang
Celsius is inside the energy drink market. But its marketing is toward the fitness crowd. And that's where Bang positions itself as well. Considering Celsius is the hottest thing in the energy drink space, Monster is trying to get a cut of the action by acquiring what is perhaps Celsius' biggest rival drink brand.
Do Celsius' shareholders need to worry now that Monster is acquiring Bang? No, I don't believe that's the right takeaway. Celsius still has an amazing growth opportunity as Pepsi boosts its distribution in the U.S. and eventually internationally.
However, I do believe Monster's shareholders have reason for optimism regarding its acquisition of Bang. The company sells more than 30 brands of energy drinks, not to mention its beverage portfolio for alcoholic beverages and sparkling water. However, Bang addresses a growing part of the energy drink space.
Moreover, Monster appears to be getting Bang for a bargain price. Included in the sale is Bang's production facility. Plus, Bang reportedly generated $1.4 billion in revenue in 2021 before sales slipped somewhere around 30%. That would put Bang's sales still around $1 billion. Therefore, Monster is acquiring a potentially lucrative high-growth brand at less than 0.5 sales, which is quite a steal and could create a lot of value of Monster's shareholders.
