Danish brewer Carlsberg is pouring $4.2 billion into a deal with Pepsi and Lipton distributor Britvic as Gen Z shies away from alcohol

The trend of people rejecting alcoholic drinks in favor of their non-alcoholic counterparts has been afoot for a while.

While the burgeoning “moderative movement” among the next generation could threaten alcohol companies’ bread-and-butter, it has also opened up new avenues to cater to people’s changing lifestyles and preferences.

It could even boost companies’ growth after a long-drawn slump in beer sales—that’s what Danish brewer Carlsberg hopes with its acquisition of soft drink company Britvic announced on Monday.

The deal with Britvic, the bottler and distributor of Pepsi and Lipton drinks in the U.K., France, and elsewhere, is worth £3.3 billion ($4.2 billion), a 36% premium above its share price, and will give Carlsberg a foothold in the British soft drink market.

It will also make the Danish company a major supplier of PepsiCo’s operations in the U.K., helping it look beyond beer. Carlsberg already makes well-known drinks other than its lagers and pilsners, such as Somersby cider and Garage seltzers—but they only make up a fraction of its sales volumes.

“With this transaction, we are combining Britvic’s high-quality soft drinks portfolio with Carlsberg’s strong beer portfolio and route-to-market capabilities, creating an enhanced proposition across the UK and other markets in Western Europe,” Carlsberg CEO Jacob Aarup-Andersen said in a statement.

Cracking the path ahead

The acquisition is significant for Carlsberg, which plans to turbocharge growth by 4-6% annually through 2027, according to a new strategy laid out in February. To achieve that, Carlsberg said it wants to double down on premium beers while also growing its non-alcoholic beverage offerings.

“They [Carlsberg] do already have soft drinks, a combined portfolio of beer and soft drinks in a number of markets, and in those markets, the margin is higher than the average,” a Carlsberg spokesperson told Fortune, attributing the efficiency to “good synergies” from streamlining operations. The group also estimates an annual cost savings of £100 million ($128 million) following the acquisition.

“It’s very much a kind of growth-oriented acquisition, wanting to expand and invest.”

Carlsberg’s soft drinks portfolio is small—16% of its group’s volumes—pointing to the prominence of its beer business. Despite beefing up its non-alcoholic beverage portfolio, the company still remains a brewer first, Carlsberg’s spokesperson said.

Britvic is home to over 35 brands, including Fruit Shoot and J2O, that sell predominantly in Britain and other parts of Europe. It’s been around since 1938 and is the official PepsiCo bottler and distributor in the U.K. for soft drinks like Mountain Dew and 7UP.

Carlsberg’s deal followed PepsiCo’s agreement to waive the change-of-control clause over Britvic’s bottling operations, which helped smoothen the deal after its earlier rejection.

“Carlsberg has been a bottler for decades, and there would be synergies in the “beyond beer” business,” Bernstein analysts said in a note following news about a possible deal late last month.

Carlsberg’s U.K. arm will take over U.K.-listed Britvic’s operations and be called “Carlsberg Britvic.” The company will continue to look for similar opportunities in other parts of Europe to bolster its business. On Monday, it also announced that it’ll buy out the joint venture it has with U.K. pub chain Marston’s, further strengthening its stride towards Western European markets.

Many of the world’s biggest brewers, including AB InBev, Heineken, and Carlsberg, have sought to expand their non-alcoholic beverage offerings. They’ve tried to increase the number of options in that segment along with launching “0.0” or alcohol-free alternatives to their flagship beers. Brewers are also trying to spruce up their new “beers” by selling them to consumers with familiar packaging and at high-profile events like the Olympics.

“For brand owners, moderation is an established trend and no-alcohol products which keep customers within a category (eg: switching beer for no-alcohol beer) or brand portfolio (eg: Switching a Heineken for Heineken 0.0) offer an option to hold on to revenue and continue to build brand equity,” Susie Goldspink, head of no- and low-alcohol insights at data firm IWSR, told Fortune in an email.