Keurig Dr Pepper M&A Spree is Heating Up
Imagine you’re a major beverage portfolio CEO for a second…one that will generate $4 billion of discretionary cash flow over the next three years. With a little financial engineering magic, levering up with debt can take that $4 billion and turns it into $20 billion. This is the exact scenario that Keurig Dr Pepper (KDP) laid out in its 2021 Investor Day presentation…
KDP M&A Criteria
With the beverage industry quickly consolidating, I guess it’s time to go shopping for M&A targets. Here are the “rules of the game” according to KDP…
The beverage giant is seeking deals that are balanced in size and complexity. These will seek to enable portfolio expansion, distribution scale, geographic expansion, and/or new capabilities.
KDP Brand Portfolio
Based on those objectives, it’s probably important to understand the current KDP ‘Packaged Beverages’ portfolio…
- #1 growth leader in carbonated soft drinks (e.g. Dr Pepper, Canada Dry, Crush, A&W, and 7up)
- #2 premium water portfolio (e.g. Bai and CORE)
- #2 juice drink portfolio (e.g. Mott’s)
- #2 premium tea portfolio (e.g. Snapple)
- #1 mixer portfolio (e.g. Mr & Mrs T and Margaritaville)
Note: KDP owns additional packaged beverage brands in energy and several other categories.
Additionally, KDP is the #4 RTD alcohol portfolio in Canada with a distribution partnership with Mark Anthony Brands (maker of White Claw). The alcoholic beverage offerings in Canada include Mott’s Clamato RTD Caesar, Snapple Spiked Tea, and Hires Root Beer & Vodka.
Finally, the other portion of the KDP brand portfolio (called ‘Coffee Systems’) surrounds the market leader in single-serving brewing systems and pods Keurig.
KDP M&A Predictions
Armed with all that information, which brands would you acquire if you were the CEO of KDP? This was the hypothetical question that I originally explored in my October 2021…
In that YouTube video, I focused on five main beverage categories and provided one M&A pick that I had conviction in (plus a few additional targets for fun). Based on market activity and new information from the last 10 months, I’m going to rate my predictions and also include some additional hot takes…
RTD Coffee
I started with the RTD coffee category because KDP obviously would love to become the leader on both sides of the marketplace.
Conviction M&A Target = La Colombe Coffee Roasters
Even though Molson Coors is the national distribution partner, I thought this M&A target could be interesting because La Colombe Coffee Roasters also owns ~30 café locations. While KDP wouldn’t be interested in running a retail business, JAB Holding Company (largest single shareholder of KDP) could easily roll them into one of its many coffee retail subsidiaries.
Status on Category M&A = ❓
Additional M&A Ideas = Community Coffee or Lavazza
Non-Alcoholic Beer, Mixers, & Mocktails
I intentionally put that “KDP Canada has alcohol SKUs” Easter egg because when combined with another Canadian strategic partnership (Labatt Breweries of Canada)…it helps you understand where I’m going with this category prediction.
Conviction M&A Target = Athletic Brewing
Since KDP Canada is already distributing Labatt’s non-alcoholic malt-based products, it gives them deep applicable knowledge that will be useful in further growing the U.S. market leader in non-alcoholic beer.
Status on Category M&A = ✅
Instead of Athletic Brewing (or my other target Fever Tree), KDP acquired the global rights to the non-alcoholic, ready-to-drink cocktail brand Atypique.
Energy Drinks
In terms of the energy drinks category, KDP would rank far behind it’s two main competitors PepsiCo and Coca-Cola (hell…it probably trails the two global alcohol distributors as well). That categorical ass whipping CANNOT continue…
Conviction M&A Target = Nutrabolt (C4 Energy)
Is the most logical prediction Adrenaline Shoc? Maybe. KDP already distributes it nationally, but I’m going to be frank here and disclose that I just don’t think A Shoc has what it takes long-term to break into the Top 5 energy drinks. I think C4 Energy is a sleeping giant, as it’s already the market leader in ready-to-mix powdered energy supplements.
Status on Category M&A = ❓✅
Protein
The protein RTD category is currently dominated by Premier Protein, Muscle Milk (PepsiCo), and Core Power (Coca-Cola). While the household penetration of RTD protein beverages is still quite low, the category has a strong CAGR that’s held consistent over the last decade.
Instead of providing one conviction M&A target, I provided one each for traditional animal-based (milk proteins), plant proteins, and alternative protein technology.
Animal-Based Protein (quickest impact, but most competitive) = Lean Body (Labrada Nutrition)
Plant-Based Protein (medium impact, long growth runway) = OWYN
Alternative Protein = (slowest impact, longest potential runway) = Perfect Day
- KDP wouldn’t want to own the cows, so why not own the science to create non-animal whey?
Status on Category M&A = ❓
Water
Though KDP is already strong in premium water, I do think “hydration” continues to be increasingly interesting category.
Conviction M&A Target = The Vita Coco Company
KDP already distributes Vita Coco, so they have strong familiarity with the brand’s missing pieces. You also get additional beverage brands that are apart of the portfolio company, like RUNA (helps energy drinks underexposure), the sustainable water brand Ever & Ever, and newly launched PWR LIFT (helps protein underexposure).
Status on Category M&A = ❓
Additional M&A Idea = National Beverage (aka La Croix), Spindrift, Hint, or Waterloo.
