American Brewing Company Inc (OTCBB:ABRW) Heats Up

Shares of American Brewing Company Inc (OTCBB:ABRW) are lighting up the charts after the company signed a deal with New Age Beverages Group, a Colorado-based, leading all-natural tea and other healthy beverage company. The companies announced the signing of a definitive agreement to merge and create an industry leading healthy functional beverage company. The deal increases ABRW's scale, strengthens the infrastructure and leadership team, and accelerates the sales and distribution capabilities of the firm which will lead to cost and revenue synergies in excess of $7.5 million. The deal has gotten penny stock investors excited and rightly so.Bucha Inc was originally founded as two separate companies in 2010, American Brewing and B&R Liquid Adventure. In 2014 American Brewing became a public company trading under the symbol ABRW, and in 2015, the Company acquired 100% of the assets of Búcha Live Kombucha from B&R. American Brewing then sold their brewing assets to focus on the new business. The company is the owner of the Búcha Live Kombucha brand, one of the fastest growing and leading brands in the rapidly growing Kombucha (fermented tea) category.The transaction includes a combination of cash and equity totaling $19,995,000 in return for 100% of the assets and interests of New Age Beverages including their brands XingTea, XingEnergy, and Aspen Pure. The consideration includes an initial $8.5 million cash payment to the majority owner of the firm that will be paid at closing, and an issuance of common stock in ABRW to the executives and the majority owner totaling $6,995,000. The total amount of shares will be based on the Volume Weighted Average Price for the thirty days prior to closing. Finally, there is a promissory note for a deferred payment to the majority owner for $4.5 million in cash. Six months after closing, a 1% interest rate on any outstanding principal will be incurred until paid in full.The initial cash payment of $8.5 million will be financed via debt from one of a number of sources that have committed to provide funding at attractive rates. The transaction is expected to close on or about June 30, 2016. Post-closing, there is expected to be around 25 million shares outstanding on a fully diluted basis. The number of shares will fluctuate as the final total amount of common stock to be issued is based on the 30-day VWAP prior to closing.There are a lot of positives for ABRW with the New Age deal. For one, New Age is a highly profitable, >$50 million privately-owned firm based in Denver, Colorado with leading brands in the Ready-to-Drink Tea segment and Functional Waters. Two, New Age founders Scott and Tom Lebon will continue as President and Senior Vice-President of Sales of the new company. This beef's up ABRW's management team and brings proven winners into the fold.Looking at the Lebon brother's success with New Age and one has to be impressed. Scott and Tom created XingTea, an all-natural RTD Tea made with pure cane sugar that is the company's flagship brand. XingTea is distributed in major national retailers across 46 states and in 10 countries around the world. The company recently extended the Xing brand with XingJuice, and XingEnergy launched in May 2016. Aspen Pure is the company's Functional Water brand made from pure artesian source water in the Colorado Rocky Mountains. The company also has a major direct store distribution division and is the largest independent beverage distributor in Colorado and surrounding areas, directly serving more than 4,500 outlets.The newly combined entity will be renamed the New Age Beverages Corporation and will be based out of Denver, Colorado. The company will be well positioned in the Kombucha, RTD tea, and functional waters categories. The Kombucha category is a $529 million segment growing at around 40% per year. RTD tea is now a $6.6 billion category in the US alone growing at 3.6%, and Functional Waters is a $17.2 billion segment growing at 11.5% per year. This compares to Carbonated Soft Drinks, for example, that is declining around 2% per year and has declined for 11 straight years in the US.Once the merger is complete, there will be roughly 25 million shares outstanding. At current levels, ABRW would have a market cap of just under $35 million. This is quite cheap when you consider that New Age Beverages on its own generated more than $3 million in free cash flow in 2015, and the combined group is expected to significantly add to this as the cost synergies are achieved and flow through to the bottom line. We believe the New Age Beverages deal is winner for ABRW and its shareholders. We will be updating Insider Financial as soon as we know more. For continuing coverage on ABRW, sign up for our free newsletter today and get our next hot stock pick!Disclosure: We have no position in ABRW and have not been compensated for this article.