Introduction
Large consumer companies are good at running big brands and poor at creating new ones. The brands that win younger shoppers often start small, grow through social media and specialty retailers, and are built by founders whose personal identity is bound up with the product. A big company that buys one outright, early, risks overpaying for a trend and losing the founders who made it work. So many buyers move in stages.
Coca-Cola's purchase of the sports drink BodyArmor is the model. It bought a 15% stake in 2018, which gave BodyArmor access to Coca-Cola's distribution network, and on 1 November 2021 it paid $5.6 billion for the remaining 85%, which it confirmed was its largest-ever brand acquisition, according to the Associated Press report. Coca-Cola said it would manage BodyArmor as a separate business, still based in New York. This article explains why buyers stage their purchases, how minority stakes, venture arms and earnouts work, and how deals keep founders running the brand.
Why Buy in Stages
A staged purchase solves several problems at once. It lets the buyer learn the brand's real economics before committing most of the capital. It gives the brand access to the buyer's distribution, which tests whether the growth can scale. It aligns the founders, who keep a large stake and the incentive to keep building. And it sets a path to full ownership at a price agreed in advance, which protects the buyer if the brand succeeds.
The cost is that a successful brand becomes much more expensive by the time the buyer takes full control, and the founders retain real power in the meantime. Buyers accept that trade because the alternative, paying full price for a brand that might fade, is riskier still. Stake-first deals sit alongside the bolt-ons and larger acquisitions described in staples M&A: brand buys, bolt-ons and megamergers. How such brands are valued is covered in valuing high-growth and insurgent consumer brands.
Minority Stakes With Call Options
- Call Option (in a Minority Investment)
The right, but not the obligation, of an investor holding a minority stake to buy the remaining shares at a later date, usually at a price set by a formula such as a multiple of revenue or EBITDA. Founders often receive a matching put option, the right to require the investor to buy them out.
The terms decide who benefits as the brand grows. A pricing formula fixed in advance protects the buyer if the brand takes off, while a formula with a floor protects the founders if it slows. Windows set when the option can be exercised, and governance rights decide how much say the investor has before it owns the company.
| Term | What the buyer wants | What the founders want |
|---|---|---|
| Option price | Fixed multiple or cap | Market value at exercise, with a floor |
| Exercise window | Flexibility on timing | Certainty of an exit date |
| Governance | Board seats and consent rights | Operating control |
| Commercial agreement | Distribution exclusivity | Freedom to use other partners |
| Exit for founders | Lock-up until exercise | A put option if the buyer walks away |
Minority stakes often come with a commercial agreement, usually distribution. PepsiCo, for example, bought $585 million of new convertible preferred stock in Celsius Holdings in 2025, taking its stake to about 11%, alongside an arrangement under which PepsiCo distributes Celsius' Alani Nu brand, according to Food Business News. The stake and the distribution deal reinforce each other: the investor's network accelerates the brand, and its equity lets it share in the growth it helps create.
Stake size, accounting and control
The size of the first stake is rarely arbitrary. Below about 20%, an investor usually carries the investment without recording a share of the brand's profits; between about 20% and 50%, with significant influence, it typically uses the equity method, as explained in the Accounting guide's the equity method; above 50%, it consolidates the brand. Buyers choose a stake that fits how they want the brand's results, and any early losses, to appear in their own accounts, and they watch control thresholds in the shareholder agreement, since consent rights over budgets or new partners can amount to influence even with a small stake.
Venture Arms
Some companies invest earlier still through corporate venture arms that take small minority stakes in young brands. General Mills shifted its 301 Inc unit in 2015 from building brands internally to investing in early-stage food companies, after concluding that incubating a new business takes a lot of time and that large companies may lack the patience to wait five to seven years for one to reach scale, according to FoodNavigator's report. Such investments could later lead to an acquisition, but that was not a requirement.
Venture arms give a large company an early view of emerging categories and a relationship with founders before rivals have one. Their stakes are usually too small to carry control, so their value lies in information and access as much as in financial returns.
Earnouts: Paying for Growth Only If It Arrives
- Earnout
A part of the purchase price paid only if the acquired business meets agreed targets after closing, such as revenue or profit milestones over two or three years. Earnouts bridge the gap between a seller's forecast and a buyer's caution by making part of the price depend on actual results.
Earnouts are common when a buyer acquires an insurgent outright, because they shift part of the forecast risk back to the sellers. Accounting treats the earnout as contingent consideration, recorded at fair value when the deal closes. e.l.f. Beauty's acquisition of rhode, which closed on 5 August 2025, included cash of $589.1 million, about 2.58 million shares valued at $300.3 million and a potential earnout of up to $200 million based on milestones by 2028, according to e.l.f.'s quarterly report.
Designing the earnout
Earnouts create their own tensions. The buyer controls the business after closing, while the founders' payout depends on results, so disputes arise over budgets, pricing and integration decisions that affect the milestones. Agreements therefore include operating covenants that spell out how the business must be run during the earnout period, such as minimum marketing support or limits on moving the brand into other channels.
The choice of metric matters too. Revenue targets are easier to measure and harder to manipulate through cost allocations, but they can reward growth bought with heavy promotion; profit targets align better with value but invite arguments over which costs the parent charges to the brand. Many agreements also accelerate the earnout if the buyer sells the business or breaches its covenants. The general mechanics are covered in the blog post on earnout structures and negotiation.
Keeping Founders Running the Brand
Whatever the structure, the buyer is usually paying for something the founders carry: the brand's voice, its community and its speed. Deals therefore try to keep that intact. Buyers often run the brand as a separate business, as Coca-Cola did with BodyArmor, limit integration to back-office functions and supply chain, and tie founders' rewards to the brand's performance rather than to the parent's.
Incentives carry much of that protection. Founders who stay often receive rollover equity in the brand or long-term awards tied to its sales and profit, and some deals give them a formal role in setting the brand's marketing and product plans. The aim is to make staying more rewarding than leaving once the purchase price has been paid.
For a coverage banker, staged and contingent structures let a large client buy into the future of a category without betting everything on day one. The skill is in the terms: pricing the option, sizing the earnout and protecting the brand, so that both sides still want the deal when the time comes to complete it.
