_{DEAL OF THE MONTH}

Pepsi Goes Snacks on Siete Foods

Pepsi has agreed to acquire the Mexican-American snack brand, Siete Foods for $1.2 billion.

Siete - named for the seven family members who started the brand - was doing $1 million in revenue in 2016. Fast forward three years and growth equity firm Stripes poured $90 million into the Siete to accelerate growth, and well, that clearly worked as Siete now generates revenue of ~$500 million per year.

Now let’s look at scale a bit. Pepsi is a massive company - it has a market cap of ~$240 billion and generated $91.5 billion of revenue in 2023. It’s clear that Pepsi has the scale to acquire Siete without much drama, but why would Pepsi bother acquiring a company that will contribute to less than 1% of its 2023 revenues?

Well first of all, the multiple - the deal is pretty attractively priced at 2.4x revenue.

Additionally, Pepsi has a history of doing acquisitions to bring in their best IP, including acquiring Gatorade from Quaker Oats, which we all know was a fantastic deal.

Pepsi generates most of its revenue and operating products from food rather than beverage, so adding an additional brand to grow that segment and leverage Pepsi’s existing distribution network makes a lot of sense. 

Additionally, Siete offers complimentary products to Pepsi’s existing product line (let’s not forget Pepsi owns Frito Lay), but they also allow Pepsi to expand further into the chips category, including adding sauces, seasonings, beans, tortillas, and more to the portfolio.

Pepsi has traded a lot worse than Coca Cola this year, with Coke up 16% YTD and Pepsi only up 1.90% YTD. This deal will likely not save Pepsi’s share price through the end of the year, but it clearly has not hurt either. Given the small scale of the acquisition, this will likely just be a blip on Pepsi’s next earnings report.

All in all, this deal is not going to really drive significant changes for Pepsi but it is clearly a strategic deal for its chip portfolio. As snack enjoyers, we are still looking for a food company to sponsor our next edition, but until then we will continue to just consume their snacks at great expense to our corporate cards.

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_{INT’L DEAL OF THE MONTH}

Rio Tinto Gets Energized with Arcadium Lithium

Anddd… we are back with another metals & mining deal for this edition of Buysiders. Rio Tinto, the world’s third largest mining company, has agreed to acquire Arcadium Lithium for a total of $6.7 billion.

Rio is acquiring Arcadium for $5.85/share, a 90% premium to the unadjusted share price. Yes, 90%. Needless to say, Arcadium shareholders are happy and the shares have traded up to reflect that. Interestingly, Arcadium is still down 18.3% YTD because of the absolute destruction in lithium prices this year.   

Before you start wondering who’s getting fired at Rio for offering such a steep premium for a company whose share price looks like every short seller's dream, let’s take a look at Rio’s strategic play here. This acquisition will make Rio Tinto the second-largest lithium producer in the world, with the largest resource base in the sector.

The timing for a lithium merger is also spot-on. Battery demand continues to outstrip supply, and with lithium prices down 80% from their peak.

The deal also offers some rare synergies in mining, as Arcadium's assets are located near Rio’s, combining both hard rock and brine lithium production.

But if you think Rio’s shareholders are thrilled, think again. The stock is down 14% year-to-date and has dropped 12% since a run-up in September, as investors aren’t exactly cheering for a deal that will gobble up around 5% of group CapEx and comes with a hefty premium.

It’s easy to see why some might think Rio is overpaying. Many mining investors are focused on cash returns, and a deal like this, especially at a 90% premium, might be tough to digest.

As someone who spends an unhealthy amount of time analyzing rocks, I can see Rio’s long-term vision here. This is one of those deals where, if lithium prices bounce back, the business development team will look like heroes. If not, well... they might be brushing up their résumés. I’m betting on the former, but we’ll keep you posted.

_{PRIVATE EQUITY DEAL OF THE MONTH}

TPG Rise Climate Makes Its Biggest Bet

While we have been covering a lot of strategic deals recently, it is important to remember that private equity firms still exist and have lots of dry powder to play with.

Typically we cover less sponsor-backed deals because they are less interesting, there are no synergies to talk about, usually no significant premiums, and most importantly for me, no investor presentations to leverage.

However, October has been a light deal month so far, so we have a global strategic deal to wrap up today’s edition.

TPG Rise Climate, alongside Singapore’s GIC, has agreed to acquire Techem from the Partners Group for €6.7 billion.

This marks the largest deal ever for TPG Rise Climate, with GIC making a significant minority investment. The payment will be split—one at closing and another in 2027.

Techem is a key player in digital energy services, with operations in 18 countries, servicing over 13 million homes through 62 million devices. The company’s focus? Reducing carbon emissions in real estate, a sector that’s responsible for a staggering 40% of global CO2 emissions.

With TPG’s backing, Techem is poised to accelerate its decarbonization efforts, making buildings more energy-efficient on a global scale.

Admittedly, private equity deals tend to leave us with fewer data points—leverage, returns, etc.—but this one is shaping up to be a winner for the Partners Group. And with TPG Rise Climate placing its biggest bet yet, this is one transaction worth keeping an eye on.

_{NEWS ROUNDUP}

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