PepsiCo cash injection leaves Celsius open to M&A of its own

Celsius Holdings has provided further detail on the energy drinks company’s plans for the US$550m invested by PepsiCo in return for an 8.5% stake in the group. On a call with analysts following the announcement PepsiCo would become the “long-term strategic distribution” partner for the US business, Celsius CEO John Fieldly and CFO Jarrod Langhans said the investment presented “opportunities” for M&A of its own but insisted the funds were not burning a hole in its pocket. “I think there are opportunities there for M&A and we put that on the list as a potential use of proceeds,” CEO John Fieldly said. “As we go forwards it allows us to be nimble. We are extremely focused on our core portfolio with Celsius, taking advantage of this partnership but M&A is not out of the question as we look over the horizon.” CFO Jarrod Langhans added: “We’re not going to be quick and rush into anything. We are looking for profitable growth, and this gives us the chance to invest ahead of some of that growth. It also gives us the opportunity to increase some of our purchases that we were going to make over multiple years… We’ll deploy those types of things, the kinds of things that will drive growth and profits, first.” Langhans added Celsius would seek to increase its inventory ahead of the new distribution partnership coming online. The Florida-headquartered company believes the deal will increase its distribution footprint by around 40% in the next 12 months. “The most important thing is ensuring that we have a successful transition,” he said. “We will do some inventory building and make sure Pepsi has the product ready, so you will see some working capital used for that. “It’s about having that firepower going forward. I wouldn’t expect to see the $550m depleted in six or seven months. It’s going to take a while.” Celsius: Deal gives PepsiCo “skin in the game” Fieldly also shed further light on why the deal was structured to give PepsiCo an 8.5% stake in Celsius, despite previously suggesting it could continue to accelerate growth without giving away equity. “We felt it was important partnering with PepsiCo to have them take a meaningful stake in the business and to have skin in the game as well,” Fieldly said. “We see a lot of opportunities for potential vertical integration… given the changes in consumer mindset - fitness is a mega trend - and the way the product is resonating with consumers we felt that it was time… Having skin in the game is important [for PepsiCo], and increases in working capital on our balance sheet, allowing us to be nimble and take advantage of opportunities.” In 2021, Celsius generated revenue of $104.3m, almost treble the $35.7m it booked in 2020. Of this, $95.9m came from domestic sales, with the group hoping to expand its reach in new global markets following the deal. From PepsiCo’s perspective, the deal with Celsius comes a matter of weeks after the CSD giant’s deal with energy drink brand Bang energy came to an end. Meanwhile, yesterday, PepsiCo also announced it had struck a deal to buy 20% in Carpathian Springs, the owner of Romanian bottled-water business Aqua Carpatica. Why M&A moves suggest a healthy future for soft drinks