Vita Coco and Valuation

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One of our favorite holdings, PepsiCo (NYSE:PEP), is in talks about potentially acquiring All Market Inc., the owner of Vita Coco. Vita Coco is the top selling brand of coconut water on the market. This investment makes a lot of sense, as PepsiCo under CEO Indra Nooyi, has been shifting the company’s product portfolio away from just junk food and gearing it more towards the health conscious consumer.

It was recently reported that PepsiCo is looking to purchase Vita Coco for less than $1 billion. All Market’s owners are looking to sell the company for $1 billion. Negotiations have started, but the acquisition is not yet a sure thing.

Vita Coco, was founded back in 2004 by two friends in New York. The brand now dominates a 26% share of the coconut water market, worth $2.5 billion. Ziko, the Coca-Cola (NYSE:KO) owned brand is the second strongest brand. The coconut water market is expected to reach $5 billion by 2022 and is growing at a compounded annual growth rate (CAGR) of 22%.

PepsiCo generated about $7.4 billion in free cash in 2016, and has a strong track record for remaining free cash flow positive year after year. FCF as % of sales has remained greater than 10% since 2013.

 

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