Wednesday, July 14, 2021

Pepsico ($PEP) filed its latest quarterly report this week, and we were skimming through the disclosures when something interesting caught our eye: the company listed a trio of acquisitions it had made in the last year.

That Pepsi makes acquisitions isn’t news; the company has anywhere from $15 billion to $20 billion in revenue every quarter and sits on $92 billion in total assets. Of course a firm that size can make plenty of acquisitions, including some plenty large ones.

In this latest report, however, Pepsi provided the purchase price allocation for all three deals — with quite a bit of variety among them.

First, let’s list the acquisitions themselves:

  • Pioneer Foods, a food and beverage company in South Africa, acquired in March 2020 for roughly $1.2 billion;
  • Be & Cheery, a large online snack company in China, acquired in June 2020 for roughly $700 million;
  • Rockstar, an energy drink manufacturer headquartered in New York, acquired in April 2020 for $3.85 billion in cash and another $880 million pending in contingent consideration, for a total price of $4.73 billion.

How did Pepsico allocate those deals? See Figure 1, below, for the disclosure details:

For Rockstar, the energy company, 48 percent of the deal’s total value was tied up in goodwill. For Pioneer Foods, 45 percent was assigned to goodwill. For Be & Cheery, it was 44 percent.

More interesting was that Rockstar’s deal had much less value assigned to physical stuff such as inventories and property, plant & equipment. That accounted for only 1.2 percent of Rockstar’s deal, versus 49.5 percent at Pioneer and 15 percent at Be & Cheery.

The other notable item here is that $2.4 billion paid to Rockstar for non-amortizable intangible assets. What’s that all about?

Honestly, we’re not quite sure. In theory, such assets would be any intangible asset with a perpetual life — say, distribution or franchise agreements with no expiration date. In Pepsi’s disclosures, we had a harder time figuring out exactly what that $2.4 billion is paying for. (Or the $309 million in the Be & Cheery deal, for that matter.)

The narrative disclosures under the purchase price allocation table only talk about goodwill value, and where each acquisition’s goodwill will be allocated among Pepsico’s various operating units. Then we jumped over to the firm’s disclosures about goodwill and intangible assets. That disclosure mentions “other indefinite-lived intangible assets,” which did increase from $17.61 billion in December 2020 to $17.74 billion as of June 2021 — but we still have no clear sense of what those assets actually are, and the year-over-year total increase doesn’t add up to what was reported in the acquisitions section anyway.

To be clear, we are not suggesting any shenanigans in Pepsico’s reporting. We merely point out that the details are important, and Calcbench has the detailed data that can let you, the analyst, ask better questions so you can get better answers.


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