“The purchase of ActiveCare would add tens of thousands of members to HomMED’s patient/member base, which then they would be able to further monetize off of that member base, and possibly triple net revenue for this division,” according to Michael Tu, buy-side analyst for BlueHill Strategic.
PepsiCo, Inc. (NYSE:PEP) and Sodastream International Ltd (NASDAQ:SODA) have been doing the M&A dance, with rumors swirling around a possible $2 billion deal for PepsiCo, Inc. (NYSE:PEP) to purchase the in-home beverage maker, ironically following a decrease in U.S. soda consumption.
Sodastream International Ltd (NASDAQ:SODA) engages in the development, manufacture, and sale of home beverage carbonation systems that enable consumers to transform ordinary tap water instantly into carbonated soft drinks and sparkling water. It offers a range of soda makers, exchangeable food-grade carbon-dioxide (CO2) cylinders and refills, reusable carbonation bottles, and various flavors to add to the carbonated water, as well as sells additional accessories, such as bottle cleaning materials and ice cube trays. The company sells its products through approximately 60,000 retail stores in 45 countries.
The fact that PepsiCo, Inc. (NYSE:PEP) has been overtly looking into Sodastream International Ltd (NASDAQ:SODA) at current valuations bids us to take a close look at the underlying financials of this pop-drink maker. Currently, it is trading close to 6 times Tangible Book Value, while producing over $466 million in revenue. This places Sodastream International Ltd (NASDAQ:SODA) at a marginal discount to its peers.
With the market for soda becoming soft in the U.S., PepsiCo, Inc. (NYSE:PEP) must make strategic investments into niche businesses in order to remain competitive and keep a steady customer base to maintain cash flow. Because Sodastream International Ltd (NASDAQ:SODA) is cash positive by over $38 million in the twelve months ending March 2013, we can assume that PepsiCo, Inc. (NYSE:PEP) would not only benefit from this business by filling a gap in their current line of products, but also add a growing business and consolidate efforts in over 45 countries, while building their bottom line through this acquisition.
Conclusion
Once again, we see big names entering the merger and acquisition arena. This bodes well for bullish investors that have been waiting for current market value justification and foundation. With the Dow Jones holding precipitously over 15,000, we have but one caveat: history suggests spikes in merger and acquisition activity are often followed by steep declines.
Nevertheless, the current trend of increasing M&A activity, market sentiment, and bullish “risk-on” trading will soon turn the big investment banks like Goldman Sachs Group Inc (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM), and Lazard, toward higher commissions. So as investors should, embrace the current market trend, but be weary of any bubble in the merger and acquisition market.
With the pace of activity well on its way to reach over 30,000 announced deals and $2 trillion in value, we still fall below the watermarks set in 2000 and 2007. I would safely assume there is no “spike” currently and we have more upside to enjoy.
The article M&A Activity Is Making Movers Out of Shakers originally appeared on Fool.com and is written by Michael Mandala.
Michael Mandala has no position in any stocks mentioned. The Motley Fool recommends SodaStream. The Motley Fool owns shares of SodaStream. Michael is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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