PEPSICO & SODASTREAM

By: Aidan Sondell

PepsiCo is one of the world leaders when it comes to food and beverages. Their top products include, but are not limited to, Pepsi, Lay’s, and Quaker Oats In August of 2018, PepsiCo (NASDAQ: PEP) announced that they would be acquiring SodaStream International (NASDAQ: SODA) for $3.2 billion.

SodaStream makes a machine that allows their consumers to make their own carbonated beverages in the comfort of their own home According to Pew Research, compared to 20 years ago, 54% of Americans pay closer attention to eating healthier. With the market preferences changing to healthier food and beverage items, Pepsi products have not been as prominent in consumer homes. Wall Street Journal reported that their beverage revenue in North America has declined nearly 1% since the third quarter of 2017 contributing to the 14% decrease in profits over that span.

SodaStream has focused on making sparkling water flavors with less sugar compared to their soda items. In order for Pepsi to remain a staple household name, they needed to remain aligned with consumer values It also helps PepsiCo reduce their carbon footprint as SodaStream utilizes reusable bottles. The CEO of PepsiCo, Ramon Laguarta, stated that “SodaStream is highly complementary and incremental to our business, adding to our growing water portfolio,” (Bloomberg, 2018) There were hard and soft synergies that soon benefited both companies. Hard synergies focus on the measurable benefits such as increased efficiency and cost savings One hard synergies was increased manufacturing efficiency for SodaStream, as PepsiCo is known for their efficient manufacturing processes. This will allow SodaStream to cut some of their manufacturing costs with the help from Pepsi. Another hard synergy was the expanded distribution channels and target market for PepsiCo due to the diversification of their product portfolio By entering into a new market, they unlocked potential for rapid revenue growth. A couple soft synergies included increased brand recognition and marketing successes for SodaStream. Overall it is a win-win deal, and both companies will begin to see benefits within the next 2-3 years.

Goldman Sachs and Centerview were the primary banks that advised PepsiCo on the acquisition and provided insight regarding SodaStream’s valuation and the deal structure. SodaStream was advised by Perella Weinberg Partners Ultimately, PepsiCo paid all $32B in cash when the deal was officially completed near the end of 2018

Currently, PepsiCo is trading at $181.65 per share. Due to Pepsi’s growth over time, there has been about a 62% increase in their stock price since the acquisition of SodaStream was announced in August of 2018 In 2019 they also acquired Evolve, the company that makes Muscle Milk Over the past five years, Pepsi has been making strong moves in order to create a new brand image that focuses on making healthy at-home food and beverages. The current P/E ratio is 28.14, and according to Investopedia the industry average range is 25-30 The P/E ratio is a quick way to analyze if a company has high potential for growth, and it seems Pepsi is going to grow at an average rate.

The deal has ended up successful for both sides, as SodaStream gained a lot of awareness while PepsiCo gained revenue from the sales. Furthermore, Pepsi was able to help create new models and product accessories that allowed SodaStream to expand. For example, they made a glass reusable bottle instead of plastic which washes easier They also created additional fizz settings for consumers to customize their beverages I recommend that PepsiCo continues to update the SodaStream line as consumer behavior changes in efforts to make SodaStream one of PepsiCo’s top products.