Pepsico CEO Indra Nooyi inspects Pete's Fresh Market in Chicago, April 2015
PepsiCo CEO Indra Nooyi inspects Pete's Fresh Market in Chicago, April 2015. Photograph by Mark Peterson — Redux

PepsiCo Is Reportedly Close to Buying This Probiotic Drinks Company

Oct 14, 2016

PepsiCo Inc is nearing a deal to acquire sparkling probiotic U.S. drinks company KeVita, people familiar with the matter said on Thursday, in the latest push by the carbonated beverage giant to diversify its soft drinks business.

The deal would be PepsiCo's first outright acquisition through its venture arm dubbed Naked Emerging Brands, whose mission is to expand the company's portfolio of sugary drinks by developing brands that appeal to health-conscious consumers.

PepsiCo (pep) already owns a minority stake in KeVita, and has a distribution agreement with the Oxnard, California-based company, the people said.

The acquisition of KeVita could be finalized as early as this month, and will likely value the privately held company at less than $500 million, the people said. There is always a possibility that the negotiations end unsuccessfully, the people cautioned.

The sources asked not to be identified because the negotiations are confidential. A spokesperson for Pepsi said that the company does not comment on "rumor or speculation." KeVita could not be immediately reached for comment.

Carbonated beverages sales have softened in recent years, as consumers seek calorie-free alternatives to sugary drinks. Several U.S. cities have introduced a so-called 'soda tax' on sugary drinks, or are seeking to do so.

KeVita sells drinks that include sparkling probiotics, master brew kombucha tea, and vinegar tonics. Probiotics, proponents say, help aid digestive and immune health.

KeVita was founded in 2010 by Chakra Earthsong, a nutritional consultant, and her friend, entrepreneur Bill Moses. They combined Earthsong's at-home water kefir ferment with Moses's winemaking fermentation knowledge.

The company has also received investments from private equity firms KarpReilly and SPK Capital.

Early minority investments in companies such as KeVita allow PepsiCo and rival Coca-Cola (ko) to familiarize themselves with a startup before buying it outright, as only a small percentage of new drink concepts take off. These investments also usually come with distribution agreements, which allow the bulging brands to grow.

When these startups find their footing and prove their business plan, they will often consider selling outright.

Earlier this month, Reuters reported that antioxidant beverage company Bai Brands, in which Dr Pepper Snapple Group (dps) owns a minority stake, is exploring a sale that it hopes will value it at more than $2 billion.

PepsiCo's existing healthier offerings include Naked Juice and O.N.E Coconut Waters.

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