PepsiCo (NASDAQ: PEP) reported Wednesday it will acquire energy drink maker, Rockstar Energy, for a total of USD3.85 Billion. The idea of energy drinks as soda has been a large focus between the company and long time competitor, Coca-Cola. However, the company must also work on improving it’s declining Mountain Dew brand.
Despite previously obtaining a distribution agreement with Rockstar Energy, Pepsi CFO Hugh Johnston spoke on the lack of innovation opportunities that it had provided. The beverage corporation could not create energy drinks or partner with other companies during the distribution agreement period and therefore opted to buy Rockstar Energy as a whole.
The company is said to be in talks with other energy drink makers and according to Stifel analyst, Mark Astrachan, Pepsi is potentially negotiating with VPX, owner of performance energy drink Bang, to lock down a distribution agreement.
Nonetheless, Pepsi does not expect the acquisition to affect its revenue for 2020. Upon regulator’s approval, the transaction is expected to close in the first half of 2020. Furthermore, according to data from Mintel, in the years 2013 to 2018, energy drink and energy shot sales skyrocketed 29.8%, amounting to around USD13.5 Billion in sales within 2019.
“As we work to be more consumer-centric and capitalize on rising demand in the functional beverage space, this highly strategic acquisition will enable us to leverage PepsiCo’s capabilities to both accelerate Rockstar’s performance and unlock our ability to expand in the category with existing brands such as Mountain Dew,” said PepsiCo Chairman and CEO Ramon Laguarta.