Immersion Learning

Israeli Companies have an Appetite to Grow

by Joshua Butler, MBA ‘15 (4/30/14)
Joshua Butler, MBA ‘15Just a few weeks ago I was in Israel, one of the most fascinating places that I have ever been. During my ten-day expedition, I ascended the mountain top of Masada, slept in a tent in the Judean desert, stood in front of the Western Wall in Jerusalem and floated effortlessly in the Dead Sea. I never would have imagined that a country the size of New Jersey would have had such rich gems and life changing experiences to offer. I also never would have imagined that this week’s case would center on the potential acquisition of an American behemoth (Pepsi) and an Israeli entity (SodaStream) located only a few miles from where I stayed.

For an investment banker, advising any strategic company on a cross border transaction is often more complex than a domestic one. Now throw in the fact that the potential targets main manufacturing facility is located in the West Bank, a politically sensitive area, and you have an even more intricate situation to consider. These transactions are where Banker’s earn their reputation regarding 100 hour weeks.

After the recent news that Coke was entering the do it yourself home beverage market by investing in Keurig, the pressure intensified regarding the response Pepsi would make to counter Coke’s move. Considering that Coke and Pepsi dominate the majority market share of non-alcoholic beverages, when one company makes a move, the other often retaliates. The strategic rationale that our class had to contemplate was a much deeper analysis than our previous Mergers & Acquisitions case, charged with not only identifying but also quantifying synergies that would result in an accretive deal for Pepsi. This was no easy feat. Furthermore, SodaStream is an entity in a very niche beverage market, so finding suitable comparable companies and precedent transactions for valuation purposes took very careful and considerably creative thought. Tallying up those aforementioned points with the political implications of the deal, you get a view into the level of complexity we experience within the Investment Banking immersion.

To ensure that our presentation to Pepsi’s CEO would be nothing less than stellar, our class provided numerous alternative considerations for her to consider. Proposals ranging from strategic partnerships to limited equity stakes in SodaStream filled the pages of our decks. Some teams proposed cash only acquisition offerings while others created pitches with a mix of cash and stock. Ultimately, there was no “right” answer - only viable positions that were supported through numerous hours of due diligence and copious debates.

While working on this case, I recalled the words of a CEO who informed our cohort during my visit to Israel that Israeli companies have an appetite to grow, specifically in the US markets. So while the jury is still out regarding the plausibility of this transaction, I’ll be sure to be on the lookout regarding the future relationship of these two companies.