New Age Beverages (NASDAQ:NBEV) CEO Brent Willis announced on June 3 that NBEV would acquire Brands Within Reach, a New York-based healthy products company. Brands Within Reach owns the brand licensing and distribution rights to several well-known beverage brands, including Nestea, Volvic, and Illy Ready to Drink Coffee.
The owners of NBEV stock should focus on the deal’s strengthening of New Age’s distribution and logistics infrastructure, rather than the company’s acquisition of the rights to more brands.
Willis had this to say about Brands Within Reach:
“Even though this comes with these globally recognized brand licenses, the bigger play is the whole infrastructure of people and warehousing and logistics and distribution footprint that we can drive our brands through,” Willis told BevNET. “It’s a much stronger organization. It’s the foundation for putting more things through that *marketing) funnel,” he added.
However, while the acquisition is more about the talent NBEV is acquiring than the products it’s getting, these new brands widen the number of better-for-you functional beverages it can offer its food service and retail customers. Over the long-term, that’s positive for NBEV stock.
In addition, it’s important to point out that Nestea has brand awareness of 89% in the U.S. That high level of brand awareness is going to open a lot of doors for the rest of New Age’s lineup of products at big chains such as Costco (NASDAQ:COST) and Walmart (NYSE:WMT) where Nestea is already a popular drink
What Did It Cost NBEV?
New Age paid $500,000 in cash and 700,000 shares of NBEV stock, while assuming $2.5 million in debt, for an enterprise value of $6.4 million based on a price of $4.85 per share for NBEV stock. The deal brings New Age’s annual revenues to over $320 million and will raise its bottom line.
It’s not a big deal, and under normal circumstances, New Age would likely have passed on the transaction because it’s still integrating Morinda, the direct-selling juice company it acquired for $85 million in December.
“I told our board at our March meeting that we would probably go on an acquisition moratorium for a year while we’re integrating Morinda, building these businesses, launching CBD, launching our Health Sciences division,” Willis said after buying Brands Within Reach. “I told them we were going to focus on pure execution — that lasted about 45 days. But this is just financially too good of an opportunity for us to pass up.”
The best acquisitions are often the ones that almost weren’t made. This latest acquisition cost less than 2%of the market cap of NBEV stock. Most investors probably didn’t hear about the deal.
However, any deal that strengthens a company’s distribution network and logistics is worth making. Kudos to Brent Willis for pulling the trigger.
Although New Age’s Q1 results missed analysts’ average expectations on both the top and bottom line, there’s a lot to like about the company’s financials.
In Q1, New Age had a net loss of $1.62 million on $58.3 million of net revenue, 83% of the company’s top line came from Morinda. On a year-over-year basis, NBEV’s sales surged 404%. But excluding Morinda’s revenues, its sales fell by 13% YoY. However, the launch of the company’s CBD beverages portfolio in the second half of the year should help reignite its sales.
While there’s a lot of work to be done before New Age’s portfolio of brands becomes household names, it’s headed in the right direction.
From a financial perspective, New Age went from negative free cash flow of $191,000 in Q1 to positive free cash flow of $11.2 million, and that doesn’t include a $31.4 million gain from the sale of property.
NBEV is still technically losing money, but the fact that it’s generating positive cash flow is good news for the owners of NBEV stock.
The Bottom Line on NBEV Stock
Brent Willis and the rest of the New Age team continue to make the moves necessary to build a national beverage company. Focusing on being a one-stop-shop for healthy beverages is a smart way to grow the company until one of its products becomes a hit.
I continue to believe only speculative and aggressive investors should own NBEV stock. Once NBEV becomes profitable and one or more of its products takes off, then I think it’s okay for less risk-averse investors to jump into New Age Beverages stock.
For now, if you want to play the beverage game, Monster Beverages (NASDAQ:MNST) is still a better choice than NBEV stock.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.