Deal of the Week

Coca-Cola Acquires Energy Drink Firm BodyArmor for $5.6B


Coca-Cola has acquired the remaining stake of energy drink firm BodyArmor for $5.6 billion. The purchase continues their head-to-head with PepsiCo's Gatorade brand (the current market leader with 70% of the segment). In addition, Coca-Cola had previously purchased a 15% stake in BodyArmor in 2018. The deal, which values BodyArmor at about $6.59 billion, is Coca-Cola's largest for a single brand; It comes about three years after the company bought the British coffee chain Costa for $5.08B. It also marks a shift in strategy for Coca-Cola after it spent the last year discontinuing brands such as its energy-drink brand to focus on Coca-Cola sodas.


Coca-Cola and rival PepsiCo face massive supply chain bottlenecks, forcing the companies to raise prices to counter higher freight and raw material costs. PepsiCo has even said it has had to deal with a shortage of Gatorade bottles. "A lot of the things Coke has done operationally, like reduce the number of products that they have and focus on faster-growing products, should help at least mitigate some cost inflation," Edward Jones analyst John Boylan said.


About the Coca-Cola Company

The Coca-Cola Company is a multinational beverage corporation headquartered in Atlanta, Georgia, United States. The firm manufactures, retails, and markets non-alcoholic beverage concentrates, syrups, and alcoholic beverages (e.g., Topo Chico Hard Seltzer). Coca Cola's notable acquisitions include: Costa ($5.08B), Vitaminwater ($4.1B), TopoChico ($220M), Fairlife (undisclosed), Glaceau Smartwater (undisclosed), MOJO Beverages (undisclosed). Some of Coca-Cola company's financials have been included below.


● Share price: $56.29 (at close November 3rd, 2021)

● Beta (5Y Monthly): 0.64

● Total Revenue (TTM): $37.802B

● Gross Margin: 60.72%

● Market Capitalisation: $243.14B

● PE Ratio (TTM): 27.72

● EPS (TTM): $2.03


About BodyArmor

BodyArmor is an American sports drink, which was founded in 2011 by Lance Collins and Mike Repole. Both founders have extensive experience in the industry - Lance Collins is the founder of 'Fuze Beverage' and 'NOS Energy Drink', and Mike Repole is the co-founder of 'Energy Brands', 'Vitaminwater, and 'Smartwater'. BodyArmor is marketed as a premium sports drink through coconut water, low sodium and high potassium levels. Additionally, the absence of artificial colours and the use of sugar in place of high fructose corn syrup is a plus (unlike Gatorade and Powerade). Some flavours include Gold Berry, Orange Mango, Tropical Punch and Watermelon Strawberry.

Some of BodyArmor’s financial success has been included below:


● BodyArmor sales have risen 43.4% year to date through February 2021 (according to Nielsen data cited by Seeking Alpha)

● Retail sales are on track for $1.4B (2021). BodyArmor’s sales were about $250 million in 2018 when Coke first invested in the startup.


The integration of Coca-Cola & BodyArmor

BodyArmor will be managed as a separate business within Coca-Cola’s North America operating unit and will continue to be based in New York. BodyArmor’s executive leadership team will stay on to lead the brand. Mike Repole will also collaborate on Coca-Cola’s non-carbonated beverage brands, including marketing, packaging and innovation strategies.


Kobe Bryant's family gains $400M.

In 2014, Kobe Bryant invested $6M for 10% of BodyArmor shares, making him the 3rd largest shareholder of the firm. Now that Coca-Cola has acquired BodyArmor, Bryant’s family has gained $400M - that’s more money than he made from his Lakers contracts ($323M). Mike Repole mentioned, “If it weren't for the vision and faith of Kobe Bryant, BodyArmor would not have been able to achieve the success we did.”


Overall, the future looks very bright for BodyArmor - the firm has experienced vast financial success (e.g. a 293% increase in valuation since 2018), is led by some of the most experienced leaders in the beverage industry, and now have the opportunity to further consolidate their market position by utilising Coca-Cola’s expertise and resources.



NVIDIA's $54B Acquisition of ARM Leads to an EU Investigation


NVIDIA Corporation has been planning to acquire ARM Holdings since August 2020. However, the completion of the deal has been delayed due to regulatory pressures. ARM has many customers, such as two of NVIDIA's biggest rivals: AMD and Intel. NVIDIA's acquisition of ARM could have many mal intentions for the pair. Moreover, the deal's value has skyrocketed over time - starting at $32B, which then rose to $40B and is now estimated to be worth $54B - making it the largest deal in semiconductor history. The acquisition would keep NVIDIA the leader in the more consolidated semiconductor industry. ARM would enable NVIDIA to expand its product range away from its high-end focused chips, as it is estimated that ARM's chips are in 95% of smartphones globally.


About ARM Holdings

ARM Holdings was founded in 1990 as a joint venture between Acord Computers, VLSI Technology, and Apple. The Japanese SoftBank Group acquired the company in 2016 for $31.4B. The firm is headquartered in Cambridge, United Kingdom and designs semiconductors and software. SoftBank has recently begun divesting its businesses to finance share buybacks, increase its cash balance and repay debt. Selling ARM Holdings to NVIDIA is crucial to SoftBank after the firm suffered heavy financial losses due to poor investments. Examples of Softbank's failed investments include the $18.5B investment into WeWork, a $4B loss in Uber, and a $240M Series C funding round for Brandless.

● Total Revenue of ARM (2015): $1.48B

● Market Capitalisation of ARM (2016): $31.64B

● EBITDA of ARM (2015): $644.8M


About NVIDIA

NVIDIA is a multinational American technology company founded in 1993 and headquartered in Santa Clara, California, United States. NVIDIA focuses on personal computer graphics, GPU, and AI.

● Share Price (as of 3rd November, 2021): $258.27

● Beta (5Y Monthly): 1.39

● Total Revenue: $21.897B (TTM)

● Gross Margin: 63.76%

● EBIT: $7.45B

● EBITDA: $8.629B

● Market Capitalisation (intraday): $639.17B

● Enterprise Value: $632.31B


Pros of the NVIDIA ARM Deal

- ARM has vast potential, but Softbank has not effectively utilised the technology nor the company as many analysts predicted; ARM has underperformed. NVIDIA is focused and has a strong history of critical funding efforts like ARM to succeed, crucial to Softbank's comparatively lower energy approach to managing the company. Under NVIDIA, ARM will increase in strength significantly.


- There is vast scope for NVIDIA to enter the mainstream computing market. Currently, NVIDIA is a leader in GPU (creates faster and clearer pictures for gaming computers). ARM's processing units are considered to be the fastest in the world. The massive scope for growth makes ARM a critical acquisition for NVIDIA.


- NVIDIA and ARM lack a CPU conflict of interest, thus making them highly motivated to rival AMD and Intel in this sphere.


- Post-acquisition, NVIDIA could have the power to choose who can utilise ARM's proprietary technology, thus controlling what their competitors can produce. This is primarily where all the regulatory procedures for anti-competitiveness have emerged from. However, if the deal goes through, NVIDIA will have the power to apply harsher licensing conditions on its main competitors, which would help consolidate its market position. The fact that 25 billion devices carrying an ARM chip were shipped in 2020 highlights how pervasive the technology world's architecture and licensing model truly is.


- NVIDIA's acquisition of ARM could lead to an entrance into entirely new spheres such as autonomous driving. Over the last few years, NVIDIA has licensed ARM technology for its own self-driving advancements. The acquisition of ARM would allow NVIDIA to have direct access to ARM's intellectual property and technical expertise, thus giving them a competitive advantage. This would increase NVIDIA's capabilities in competing against firms like Apple in the autonomous driving sphere.


Cons of the NVIDIA ARM Deal

● ARM’s culture is considered to be more collaborative, with a less rigid company structure. NVIDIA remains unchanged mainly as an old-school proprietary vendor. This can lead to a failure of utilising synergies.

● Some of ARM's most prominent customers include Intel and AMD, which are NVIDIA's biggest rivals. Although NVIDIA has ensured that it would not negatively affect ARM's business contracts, this can easily be reverted post-acquisition.


Why is the European Commission opening an in-depth investigation?

In August 2020, the Competition and Markets Authority realised that Nvidia's proposed ARM acquisition deserved closer scrutiny. The European Commission decided to step in and just launched an investigation, Margrethe Vestager, the European Commissioner for Competition, mentioned, "our analysis shows that the acquisition of ARM by NVIDIA could lead to restricted or degraded access to Arm's IP, with distortive effects in many markets where semiconductors are used. Our investigation aims to ensure that companies active in Europe continue having adequate access to the technology that is necessary to produce state-of-the-art semiconductor products at competitive prices."


NVIDIA has pledged to maintain the ecosystem that ARM has fostered throughout its lifetime. Still, the EU is also concerned that ARM licensees might be less willing to share data with NVIDIA, or NVIDIA might refocus ARM R&D towards business segments that are more profitable and less useful to its licensees.


However, trying to pinpoint NVIDIA's true intentions and plans accurately is intricate due to the rapidly changing state of the silicon (used in computer chips) market. The rise of the Internet of Things (IoT) and Artificial Intelligence (AI) have pushed silicon designs in different directions. The current global silicon shortage may also be adding to concerns around this issue.


Overall, regulators believe that the acquisition is a monopolistic move that would hinder innovation, competition, and ultimately, technological development and consumer satisfaction. Firms such as Qualcomm, Google and Microsoft have expressed concerns about the deal and mentioned that there would be adverse effects on the market from a holistic perspective.

If everything goes according to schedule, the European Commission should publish a decision by March 15th 2022. Softbank has already considered the odds of the EC blocking the acquisition and are keeping their options open. The most likely option if the purchase collapses is an ARM IPO.


Thank you to Marco Tarchoune and Farhad Huseynli for your in-depth analysis!

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