Sodastream International Ltd (SODA) an M&A Target?

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Sodastream International Ltd (NASDAQ:SODA) shares have risen 51% in the last three months. The company, that enables customers to produce their own sparkling beverage at home, has been at the center of acquisition rumors related to PepsiCo, Inc. (NYSE:PEP) and The Coca-Cola Company (NYSE:KO) of late. Although PepsiCo denied those deal rumors, shares of the Israel-based company have surged impressively.

Sodastream International Ltd (NASDAQ:SODA)Ideal acquisition target

SodaStream produces carbonation devices, canisters, CO2 cylinders, and flavored syrups which are sold at big retailers such as Wal-Mart Stores, Inc. (NYSE:WMT) or Macy’s, Inc. (NYSE:M) as well as smaller stores. The company posted $436.3 million in revenue for 2012, achieving a 51% growth compared to 2011 with an outstanding 60% increase in net income for the same period. The company is also developing strategic partnerships with Kraft, Campbell’s, Breville, and Ocean Spray and mounting a geographical expansion towards emerging markets that could be very beneficial to counterbalance its exposure to mature markets.

All of these reasons make the company a very attractive target for Coca-Cola and PepsiCo. Why? Because the company has a renowned brand and product awareness, it has increased active users, it has developed a good retail network (present in 45 countries and 60,000 stores) and advertising campaign, it has thrived with new products and the most important aspect of all: most of its financials are really solid, exhibiting an astonishing 2009-2012 CAGR (compounded annual growth rate) of 47% in revenue, 53% in EBITDA, and 71% in net income.

And another key characteristic is that Sodastream International Ltd (NASDAQ:SODA) is still growing in mature markets, so its growth prospects seem very promising.

How could SodaStream benefit PepsiCo?

PepsiCo has to find other sources of income to boost its profits. The company posted a flat net revenue for the first quarter of 2013 compared to the same quarter in 2012, totaling $12.5 billion. Moreover, its operating profit also decreased 4% in the same period of comparison which could start some alarm signals. The acquisition of SodaStream could renew the choked earnings on the beverages segment which represents more than half of PepsiCo’s profit and it has been sluggish regarding growth prospects.

Sodastream International Ltd (NASDAQ:SODA) has a lot of opportunities to expand in the Americas region, where its household penetration does not exceed 1%. In Europe, where the company has consolidated the brand and products, it reaches an approximate 20% in household penetration in some of the countries. This could be a great opportunity for PepsiCo to revitalize its product offerings and with its large scale, enter new markets that have excellent growth conditions.

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