Several beverage companies are trading higher after Dr Pepper Snapple (DPS) and PepsiCo (PEP) announced separate deals to acquire "better-for-you" drink makers, potentially signaling a pivot to acquisitions over organic growth efforts in response to secular trends towards wellness.

DR PEPPER ACQUIRES BAI: Tuesday morning, Dr Pepper announced an agreement to acquire Bai Brands and its portfolio of "high-growth premium antioxidant infused beverages" for $1.7B in cash. Dr Pepper CEO Larry Young noted that Bai "has contributed greatly to our allied brand lineup since we began distributing it broadly in 2013," adding that it "provides a strong platform to incubate and grow better-for-you beverages throughout the non-carbonated and carbonated beverage sectors." The company sees Bai generating roughly $425M in 2017 sales and adding an incremental $132M to Dr Pepper's current sales expectation for 2017. The deal is expected to dilute 2017 earnings per share by about 3c due to a planned $25M marketing boost and higher interest expenses before becoming accretive in 2018. Bai's products include "enhanced" water, carbonated flavored water, coconut water and ready-to-drink teas, categories which Dr Pepper said are "projected to continue to grow worldwide for the foreseeable future." Speaking on a subsequent conference call, Dr Pepper noted it expects the deal to add $43M in incremental operating income to its 2017 estimates, and sees Bai sales more than doubling over the next two years.

PEPSI ACQUIRES KEVITA: PepsiCo announced its own wellness-focused deal this morning, securing an agreement to acquire fermented probiotic and kombucha maker KeVita. Co-founder and CEO Bill Moses commented that "joining the PepsiCo family will give us an opportunity to extend KeVita's trend-forward beverages to a broader audience." The company will continue to operate independently with its production and bottling facilities in California. All KeVita drinks are organic, non-GMO, gluten-free and vegan, and Pepsi remarked that the deal is "further evidence" of its efforts to meet changing consumer trends. Following the news, a source quoted by the Wall Street Journal pinned the deal price at $250M and said KeVita had a little over $60M in annual revenue.

STIFEL SAYS BAI COULD DELIVER SUSTAINED GROWTH: Arguing that analogies can be drawn between Dr Pepper Snapple and Monster (MNST), Stifel's Mark Swartzberg argues that Dr Pepper has been "grinding out" U.S. share gain while keeping marketing costs under control and focusing on what sells at retail, and its acquisition of Bai demonstrates a similar "commitment to low-risk partnering with growth brands." Swartzberg calls the Bai price "fair" and says the deal delivers not just a near-term boost but could bring sustained growth by, for example, deepening Dr Pepper's presence with Coca-Cola (KO) and Pepsi bottlers. The analyst keeps a Buy rating and $99 price target on the shares.

GOLDMAN HIGHLIGHTS EXPANSION AWAY FROM SODA: Goldman Sachs analyst Judy Hong said the Bai deal shouldn't come as a surprise given its position as a top performing allied brand for Dr Pepper, and sees the transaction "likely" enhancing the company's growth profile given that Dr Pepper has largely been "indexed to secularly-declining carbonated soft drinks." Hong keeps a Sell rating and $85 target on the shares.

DEALS IGNITES BEVERAGE STOCKS: Shares of Monster Beverage, an allied brand of Coca-Cola, are up about 4% to $45.28 after this morning's acquisition announcements, and National Beverage (FIZZ), owner of the LaCroix brand of sparkling waters, is up 0.5% to $53.50. Meanwhile, Dr Pepper is up 2.4% and PepsiCo has edged up 0.7%.