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PepsiCo announced Monday a $550 million investment in energy drink maker Celsius Holdings as part of a long-term distribution deal with the smaller company.
Shares of Celsius closed up 11% on the news, bringing its market value to $7.45 billion.
Celsius is expecting to gain more shelf space in existing retailers and expand more into independent stores, such as gas stations. Pepsi will assist with the distribution starting Monday.
Pepsi’s investment in Celsius translates to a minority stake of roughly 8.5% in the company. The food and beverage giant will also nominate a director to serve on Celsius’ board.
Celsius, which was founded in 2005, has reported explosive growth for its energy drinks during the pandemic. In the first quarter, its U.S. revenue soared 217% to $123.5 million.
The company pitches its beverages as “healthy” energy drinks, targeting younger consumers who are active and exercise. Celsius drinks include ingredients such as ginger and green tea and no artificial preservatives or sugar. The company also claims that the beverages have thermogenic properties, meaning that drinking them can help increase metabolism and burn calories.
For Pepsi, the deal helps strengthen its ties to energy drinks. The category is one of the fastest growing beverage segments outside of alcohol, and Pepsi has been doubling down on energy in recent years as soda consumption falls. In early 2020, it bought legacy energy drink maker Rockstar for $3.85 billion with a goal of revitalizing its sales. Celsius recently overtook the brand as the fourth most popular energy drink in the U.S.
Pepsi had previously bet on another fast-growing upstart, Vital Pharmaceuticals’ Bang Energy, through an exclusive distribution agreement. But the relationship quickly soured, resulting in a legal battle that ended in Pepsi’s favor. In June, the two companies parted ways earlier than expected. The breakup fueled speculation that Pepsi would seek to acquire Monster Beverage or Celsius to increase its market share in the energy drink category.