PepsiCo’s $3.85 billion Acquisition of Rockstar Energy

By Steven Skomra, Dylan Barnacle, Zach Trotzky (Georgetown University), Christopher Gvenetadze, and Alessandro Carleo (Bocconi University) | 22/03/2020

Overview of the deal

PepsiCo is set to acquire Rockstar Energy in attempts to increase their presence in the energy drink market. According to the terms of the agreement, PepsiCo will provide $0.7 bn of payments related to future tax benefits associated with the transaction, payable over up to 15 years. The company does not expect the transaction to be material to its revenue or earnings per share in 2020. The transaction is subject to typical closing condition and regulatory approval, and is expected to close in the first half of 2020. Pepsi and Rockstar have previously had a distribution agreement in North America since 2009, however, this strategic acquisition by PepsiCo will help expand their energy portfolio which already includes Mountain Dew’s Kickstart, GameFuel and AMP. The decline in demand for sugary sodas has urged companies such as PesiCo and Coca-Cola to broaden their developments in this in categories such as functional beverages and energy drinks, categories which have been dominated by companies such as Red Bull and Monster Beverage. PepsiCo’s extensive distribution should lead to positive effects on Rockstar’s reach, and the diversity provided by Rockstar products should help PepsiCo remain competitive in the energy drink market with the likes of Coca-Cola who recently launched the Coca-Cola Energy line.

Acquirer: PepsiCo, Inc.

Target: Rockstar, Inc.

Estimated value: $3.85 bn

Announcement date: 03/11/2020

Acquirer Advisors: Centerview Partners LLC

Target Advisors: Goldman Sachs & Co. LLC

Company Details (Acquirer - PepsiCo)

PepsiCo is an American food, snack, and beverage company which manufactures and distributes its products in more than 200 countries. With a complementary portfolio of brands including Frito-Lay, Gatorade, Pepsi-Cola, Quaker, and Tropicana, PepsiCo generates retail sales of over $1 bn. It operates through the following business segments: Frito-Lay North America; Quaker Foods North America; North America Beverages; Latin America; Europe Sub-Saharan Africa; and Asia, Middle East, and North Africa. Within these segments include products such as chips, flavored snacks, cereals, rice, pasta, tea, coffee, sports drinks, and bottled water. Based on net revenue, PepsiCo is the second largest food and beverage business in the world and the largest in North America.

- Founded in: 1965

- Headquartered in: Purchase, Harrison, NY

- CEO: Ramon Laguarta

- Number of employees: 263,000

- Market Cap: $168.02 bn - EV: $194.88 bn

- LTM Revenue: $67.16 bn - LTM EBITDA: $12.88 bn

- LTM EV/Revenue: 2.90x - LTM EV/EBITDA: 15.13x

Company Details (Target - Rockstar Energy)

Rockstar is a company that produces energy drinks in 30 flavors at convenience and grocery stores in over 30 countries. Since its creation in 2001, Rockstar has grown to occupy a significant portion of the U.S. energy drink market. Rockstar supports the “Rockstar lifestyle” through action sports, motor sports, and live music and advertising their bright and distinctly colored cans. Rockstar sponsors various music festivals, athletic competitions, and action sports competitors.

- Founded in: 2001

- Headquartered in: Las Vegas, Nevada

- CEO: Russell Weiner

- Number of employees: 450

- Market Cap: NM - EV: NM

- LTM Revenue: $190.68 mn - LTM EBITDA: NM