(This Feb. 20 story has been corrected to fix the brokerage name to Needham, not Wedbush, in paragraph 7)

By Ananya Mariam Rajesh

(Reuters) - Celsius Holdings said on Thursday it would buy health and wellness drinks brand Alani Nutrition in a $1.8 billion deal through a combination of cash and stock, boosting its portfolio to build on the growing demand for sports and energy beverages.

Alani Nutrition, a female-focused brand that delivers functional beverages and wellness products, was founded in 2018 and will be acquired from its co-founders, Katy Schneider and Haydn Schneider, and its operator, Congo Brands, Celsius said.

Energy drinks have largely become a popular beverage among the younger population in the U.S. in recent years as more people turn to fitness and lifestyle products, prompting companies to pursue deals in the sector.

PepsiCo paid $550 million in 2022 for an 8.5% stake in Celsius.

In October, Keurig Dr Pepper said it was buying a 60% stake in energy drink maker Ghost for $990 million, with plans to purchase the remaining stake in 2028.

With the addition of Alani Nutrition, the combined Celsius platform is expected to generate about $2 billion in annual sales. For fiscal 2024, Celsius reported $1.36 billion in revenue, a 3% rise compared to the previous year.

"Strategically this deal makes good sense, as Alani is one of the fastest growing brands in energy with meaningful distribution whitespace," said Needham analyst Gerald Pascarelli.

"On a combined basis, the company will now have a low-to-mid-teens share of U.S. energy (market)," he added.

The deal includes a net purchase price of $1.65 billion and $150 million in tax assets, said Celsius.

The price consideration comprises $1,275 million in cash, a $25 million earn-out and $500 million of newly issued restricted shares of Celsius stock, representing an 8.7% pro-forma ownership, Celsius added.

Upon closing, Alani Nutrition will operate within Celsius, and key members of the Congo Brands leadership team would continue as advisors to the company, Celsius said.

The Wall Street Journal first reported the news on Thursday.