PAI Partners bought PepsiCo’s juice businesses. What next?

Clinching its first US-based investment, Europe's PAI wants to follow the Ecotone playbook with Nestle's Tropicana and Naked Juice brands.

PAI Partners inked its first US deal this Monday, buying a majority stake in PepsiCo’s heritage beverage brands business with a vision of building out a broader offering in the increasingly popular natural, organic category.

While there are no intentions of walking away from its core segment – juices, lemonades, chocolate smoothies and the like – there is an opportunity to bring some “newness within the legacy,” said Maud Brown, partner at PAI Partner. That’s the firm’s game plan with household favorite brands like Tropicana and Naked Juice, she said.

“Juice has some concerns,” Brown said, speaking to consumers’ shift away from high-sugar drinks. “But it’s also a natural product that we can continue to play in and innovate.”

It is a strategy PAI has applied within its current portfolio, Brown said, pointing to Ecotone. Europe-based Ecotone (formerly Wessanen) is an organic and vegetarian food company focused on health and sustainability.

Consumer and food brands across the spectrum are increasingly gravitating towards all-natural, organic products and private equity investors are following suit.

For example, Nexus Capital Management recently bought Sky Organics, a natural and certified organic product seller for skin and hair. Elsewhere, Prelude Growth Partners, since its launch in 2017, has bought stakes in various better-for-you products including chickpea pasta brand Banza and 8Greens, a chewable nutrients tablet.

Over the next year or two, PAI will focus on establishing the acquired brands as independent from former parent company PepsiCo. But, Brown added, “as we move further along, I’d [also] look at inorganic [M&A opportunties].”

Ready for it

Carving out the business from PepsiCo, PAI’s investment assigns the heritage beverage brands an enterprise value of $4.5 billion. Of that, approximately $2.2 billion is equity and about $2.3 billion debt.

A couple of factors helped PAI seal the deal, according to Brown: PAI’s track record with Nestlé and the fact that PepsiCo was looking for a buyer with transatlantic operations and expertise.

In 2016, PAI Partners bought Nestlé’s European ice cream business and merged it with PAI-owned R&R to create a new platform named Froneri. Late last year, the French firm bolstered Froneri with the addition of Nestlé’s US operations, including Häagen-Dazs, in a $4 billion deal.

“There [within Nestlé] we were able to demonstrate taking a traditional ice cream business and making a smaller portion size, on-the-go offering,” said Brown, explaining some of PAI’s growth initiatives.

Froneri has grown from roughly $3 billion in 2017 to $4.7 billion in revenue marked last year, according to Froneri’s annual reports.

Long in the making

PepsiCo hasn’t officially walked away from one of its most famous beverage groups.

The conglomerate always intended to hold a minority stake, and consistent with those intentions, will retain a 39 percent stake post close worth about $850 million, according to the press release. PAI Partners will own 61 percent of the equity, worth about $1.3 billion.

“It’s been a very longstanding dialogue with Pepsi,” said Brown. It became known that PepsiCo was thinking about portfolio divestitures a couple of years ago, she recalled.

“They tested the market late 2019; we were part of the group they reached out to,” Brown said. “But very quickly they decided they didn’t want to outright sell and wanted to be part owners.”

Much like many other processes, the sale paused during covid-19 and picked back up when trends started to stabilize. “We reached out earlier this year and that time it was just us,” Brown said.

JPMorgan advised PAI, while Centerview Partners was sell-side adviser on the deal.

PAI, a European private equity firm, expanded its business to North America back in 2016 but growth accelerated after Brown joined the team less than two years ago.

The six investment professionals in the New York office are helping its European portfolio businesses expand into North America while also hunting for new North American-headquartered platform opportunities, Brown said.

Update: This report has been updated to clarify Froneri’s growth intiatives and attribution of the deal structure.