Andrew Remlinger

To no one's surprise, Pepsico made it official that they're acquiring Poppi for $1.95 billion, including $300 million of "anticipated cash tax benefits" for a net purchase price of $1.65 billion. So what does "anticipated cash tax benefits" actually mean? 🧵 To be clear, Poppi and their investors will receive $1.95B in cash. For Pepsico, their message to the stock market is that it will cost a mere $1.65B because they can capture write offs against their future taxes to the value of $300M. But how? And what does that say about Poppi? It’s likely related to two components: 1. Step up in tax basis – meaning certain assets, especially intangible assets like trademarks, customer relationships, and goodwill have significant value attributed to them in the deal. Some might consider this to mean they overpaid, since the value could not be reasonably attributed solely to discounted cash flows. But the reality is that structuring the deal this way enables Pepsico to amortize the assets for a tax benefit. However, since intangible assets are usually amortized over 15 years, this is unlikely to make up the lion’s share of the “accumulated cash tax benefits” providing they are not looking out more than a couple of years. 2. Accumulated losses – it’s not hard to imagine how Superbowl ads, celebrity endorsements and sending vending machines to influencers would result in operating losses for an emerging brand. Poppi is likely to have been setting cash on fire the past few years. For Pepsico it works in their favor in the deal – they can take those losses and offset them against their own profits, reducing their tax liability. The big question is, how much of the $300M is accumulated operating losses? 🤯 Crunchbase says Poppi raised $52.3M, but are generally not able to capture every funding round, so they might have raised significantly more, and debt. Regardless, it’s probably fair to assume that Poppi managed to win by pulling off the ultimate game of chicken as they burned through cash and were able to land a deal before the wheels fell off. Incredible. Bravo to them. One more thing. Pepsico noted in their press release that there’s also an additional earn out component, but details were not provided. Would be interesting to know what that looked like. 👀