- Buys Boost for an initial £20 million in cash
- Deal boosts Barr’s focus on functional drinks
- Sees short term operating margin dilution
Shares in Irn-Bru maker AG Barr (BAG) bubbled up 2.4% to 517p on the news it had bought branded drinks business Boost in an earnings-enhancing deal which increases the soft drink group’s focus on high growth and functional beverage categories.
Boost is AG Barr’s second acquisition within a year, following the purchase of a 60% stake in oat milk maker MOMA.
Analysts at Shore Capital argue the latest exciting drinks deal provides ‘further evidence of Barr’s growth ambitions’ under canny chief executive Roger White.
EARNINGS PER SHARE BOOST
AG Barr, which makes and bottles iconic Scottish tipple Irn-Bru as well as the Rubicon and Funkin brands, is buying Boost for an initial £20 million from founder Simon Gray, who will continue to lead the business, and his wife Alison.
The soft drinks group is funding the deal from cash reserves and is on the hook for up to another £12 million depending on Boost’s financial performance over the next two years.
Founded in 2001, Boost operates mainly in the high-growth functional beverage category spanning energy, sport, iced coffee and protein drinks, and has a strong market position in the UK independent retail channel.
Boost made a pre-tax profit of £1.9 million on £42.1 million turnover in the 2021 calendar year and should lift AG Barr’s earnings per share (EPS) in the first full year of ownership.
Shore Capital nudged up its earnings per share estimate for the year to January 2024 by 2.5% to 32.2p on the news, although AG Barr cautioned its operating margin would be diluted by the deal ‘in the short term’ before rebuilding in the medium term.
WHAT IS THE CEO SAYING?
Roger White insisted the takeover serves up ‘further evidence of our strategy to continue to grow the business through targeted acquisitions, with a particular focus on developing within high growth and functional categories’.
He added the Boost portfolio offers ‘premium taste and performance at a competitive price, with a strong market position in the UK independent retail channel. With AG Barr’s proven track record of acquiring and developing attractive brands such as Rubicon and Funkin, I look forward to working with Simon and the team to ensure Boost continues to grow and develop under our ownership.’
BROKER VIEWS
Shore Capital insisted AG Barr has ‘a high quality stable of UK brands that deliver attractive mid-teens margins and sustained cash generation, which alongside a strong balance sheet has supported two acquisitions in higher growth functional beverage categories within the past 12 months.’
The broker continued: ‘Whilst short-term challenges are present, notably the weak UK consumer economy and high cost inflation, we see the current valuations as undemanding’, adding that this is ‘an attractive entry point to a high quality business with excellent medium to long term growth prospects and building ambitions.’
Liberum Capital pointed to ‘meaningful medium-term margin gains to be had once the business is integrated into AG Barr’s vertically-integrated model, and the categories in which Boost sells are well known to the group.’
The broker added: ‘Boost offers long term high growth in categories that complement its current portfolio and can leverage Barr’s distribution strength. The shares should react well to this deal as it is a signal of managements intent to use its very strong balance sheet for M&A. In this current market there could be multiple opportunities to buy further brands at sensible valuations.’
