US food and beverage giant PepsiCo is set to acquire energy drink company Rockstar Energy in a deal estimated to be worth $3.85 billion. The acquisition represents a doubling down of PepsiCo into its energy drinks market to support its currently struggling Mountain Dew brand.
Before the acquisition, PepsiCo had a distribution agreement with Rockstar Energy for the North American market. The deal, which was made back in 2009, restricted PepsiCo from release any new energy drinks that competed with Rockstar's products. It also restricted the company from partnering with other energy drink companies to expand its business.
Pepsi CFO Hugh Johnston mentioned in a statement that the acquisition will now allow the company to form new partnerships with other energy drink makers, giving it the ability to expand further into the sector with innovative new brands. A note to clients by Stifel analysts published on Wednesday revealed that PepsiCo is likely considering a distribution partnership with VPX, the company that owns the Bang energy drink brand.
According to PepsiCo, the acquisition will likely have no material impact on its revenues and profits for the rest of the year. It also stated that the deal should be completed during the first half of 2020 after it is approved by regulators. PepsiCo hired Centerview Partners as its adviser for the transaction. Meanwhile, Dunn & Crutcher and Gibson acted as lead counsel. Rockstar hired Goldman Sachs as its financial advisor for the deal, with King & Spalding acting as its legal counsel.
PepsiCo's current lineup of energy drinks includes its iconic Mountain Dew-branded Kickstart, AMP, and GameFuel, all of which hold a relatively small share in the lucrative energy drinks market. The company, along with its rival Coca-Cola, have been accelerating their efforts to take a bigger market share in the country's energy drinks sector; a segment currently dominated by US energy drinks company Monster Energy.
The country's energy drinks market has grown rapidly over the past decade, growing by about 29.8 percent since 2013. Total energy drink sales last year reached an estimated $13.5 billion, according to industry data.
PepsiCo chairman and CEO, Ramon Laguarta, mentioned in a statement that the company is working hard to capitalize on the rising demand for "functional beverages" throughout the country and in international markets. Laguarta added that the acquisition should allow PepsiCo to leverage its capabilities and Rockstar's performance to unlock more opportunities in the sector over the coming years.
