PepsiCo announced at the beginning of this week that it’s in the process of acquiring SodaStream in a deal worth $3.2 billion. SodaStream makes at-home carbonated beverage machines. The PepsiCo deal is a perfect reflection of how the consumption of soft drinks in the US is changing. Analysts believe that the deal is part of a long-term strategy by Pepsi to move towards healthier and more sustainable offerings. After all, the popularity of traditional sweetened carbonated drinks such as soda is declining due to increased health concerns. People are starting to prefer water-based drinks more and it looks like this is a space PepsiCo wants to be in.
The $3.2 billion for SodaStream is a premium price. It’s 32% more than company’s current market value but analysts believe that the deal is worth it. There’s a growing shift away from sugary drinks and SodaStream has managed to position itself in this new industry. Pepsi brings in its vast experience and resources in the beverages industry into the water category. This increases the chances of a big long-term payoff for the company. Analysts also note that the deal fits well with the current business strategy applied by PepsiCo.
SodaStream is definitely a very bold pick and the deal to take it over comes at a time when the Tel Aviv-based company has really made huge progress forward. To start with, SodaStream has entered a very small segment of the entire beverages market that has very little competition. However, due to changes in consumer preferences when it comes to soft drinks, the company has found itself in the center of a big shift in the beverages industry. Other bigger companies in this space are starting to follow suit. In addition to this, analysts also believe that SodaStream appeals to young people who are far more conscious of what they drink.
At-home carbonated drinks are also environmental friendly. In a world where it’s becoming more and more important to do things in a sustainable way, this is very important. All these factors easily explain why the company was chosen by PepsiCo and looking at the potential long-term value that SodaStream brings to the table, the $3.2 billion price may not be as inflated as it looks now.
The issue of the single-use plastic bottle on many carbonated drinks has become very important too. The plastic menace that has been devastating oceans is getting out of hand. Governments around the world are taking measures to reduce plastic usage and SodaStream has shown it’s possible to deliver soft drinks without plastic. However, targeting a large customer base with such a product will be a huge challenge.
In addition to this, the SodaStream model could be very problematic for PepsiCo. The customer has to pay a one-time fee for the machine and he or she can make all the water-based carbonated drinks they want. If Pepsi was to go this route, it would definitely have a massive implication on sales. But we are not sure what the company intends to do with SodaStream. Nonetheless, it may turn out to be a great investment!