Why AG Barr’s move for Boost Drinks looks like another smart move

AG Barr today boosted its exposure to the booming energy drinks market with the £32m takeover of indie brand Boost. 

It looks to be another smart deal by Barr CEO Roger White following the acquisition of oat milk supplier Moma Foods earlier this year.

Like that deal, it strengthens a portfolio that already includes Irn-Bru, Rubicon, Strathmore water and Funkin Cocktails and offers long-term high growth in a complementary category.

Boost is also – like Moma – a business with a capital-light model that outsources all manufacturing, warehousing and logistics, keeping costs low and margins fat.

Unlike the Moma deal, which was relatively small, Boost brings meaningful heft. It generated £42.1m of turnover in 2021, and will be earnings enhancing in year one. 

There are plenty of reasons for optimism looking ahead. Boost has built strong ties in the independent retail channel, with listings in symbol operators, c-stores and petrol forecourts. And at 65p per 250ml can – £1 less than market leader Red Bull – its energy drink is only likely to gain share in the cost of living crisis. 

Founded in Leeds by Simon Gray in 2001, the brand offers a wide range of functional beverages. Traditional energy drinks make up about half its revenues, alongside isotonic sports drinks (12% of sales), RTD iced coffee (5%) and protein shakes (1%). A distribution partnership struck with carbonated fruit drink brand Rio in 2021 has grown to make up the remaining 30% of the business.

Barr said its established scale and capability would create “channel development opportunities and new routes to market” for Boost. However, just how far it strays from the established indie-focused strategy will be a crucial point.

Boost’s strong following among the convenience and wholesale sector was likely a draw for Barr. After all, White underlines Barr’s own experience operating in the impulse, indies, symbols and wholesale markets. “It fits well with our business model. We are very comfortable with that side of the market and see Boost as a natural fit.”

But importantly, Boost has cultivated goodwill among this market by refusing to get into bed with the major supermarkets. So although a rollout into the mults may be appealing from an immediate sales perspective, it could be damaging in the longer term – and risks alienating its current customer base.

White told The Grocer today there wouldn’t be any major moves in the immediate future, at least. Boost will remain a standalone operator and will continue to be run by Gray for at least two years, and the focus will remain on long-standing customers. 

“The business will expand its activity across multiple channels and routes to market, but I don’t think you will see a huge change to that in the short term and we are certainly not initiating any of that from our perspective,” White said.

For Barr, the initial focus is on sharing its knowledge of the energy drinks category. It managed distribution for Rockstar for a number of years, before PepsiCo terminated the agreement early in 2020, paying the Irn-Bru maker £7.6m compensation in the process.

It also already makes its own caffeinated energy drinks under the Irn-Bru brand and, last year, launched a new, wildly successful, Rubicon energy range. In fact, Rubicon Raw has grown 145% in value over the past year – the only big brand to grow faster than Boost, up 85% – according to The Grocer’s upcoming end-of-year Top Products Survey.

Rubicon Raw – which is non-HFSS and boasts a 20% juice content, natural caffeine and B vitamins – is bringing new shoppers to the category and appeals to those who want to avoid drinks packed with artificial ingredients and sweeteners.

Boost, meanwhile, caters to the core energy drink market. It seems unlikely Barr will move away from that core proposition, but it does see “significant potential” for innovation and NPD.

White says Gray and his team in Leeds are already “flat out” working on innovation, which Barr is aiding with its technical ability and access to development labs.

Investors liked the look of the deal, as proven by shares in AG Barr rising 5% to 530p today and broker Liberum upgrading the stock from ‘hold’ to ‘buy’.

Liberum analyst Wayne Brown called the deal “well-priced” at 0.5x sales and 10x profits. “There exists meaningful medium-term margin gains to be had once the business is integrated into AG Barr’s vertically integrated model,” he says.

Peel Hunt agreed there were “significant opportunity for the company to find synergies”.

Brown also notes Barr’s debt-free balance sheet puts the group in a position of strength from which to engage in more M&A.

“In this current market there could be multiple opportunities to buy further brands at sensible valuations.”

So this could be the first of many boosts to come for Barr.