Pepsi Writes Down $300M Earnout Fair Value to $12 Million: Why Earnout Clauses Systematically Fail to Pay Out
OnlyCFO uses Pepsi's acquisition of Poppi and its associated earnout clause as a case study to explain why earnouts rarely pay out in full after a deal closes: sellers lose control, metric definitions are ambiguous, and budget priorities shift. Industry data shows that 41% of earnouts ultimately result in zero payment, with only 21% of the maximum earnout amount actually paid.
In May 2025, PepsiCo acquired the prebiotic soda brand Poppi for $1.95 billion in cash plus a $300 million earnout clause. The earnout stipulates that if Poppi achieves specific performance milestones by the third quarter of 2027, Pepsi must pay the $300 million; otherwise, no payment is made.
Pepsi’s latest financial report shows that the fair value of this $300 million earnout has been written down from a peak of $278 million to just $12 million. The author of OnlyCFO points out that this means Pepsi believes the likelihood of meeting the target is extremely low—$12 million represents only 4% of the $300 million target, and the clause structure is all-or-nothing.
It is virtually certain that the sellers of Poppi will not receive any money from this earnout.
The original intent of an earnout clause is to bridge valuation gaps between buyers and sellers. The buyer says: 'If you believe the company is worth more, then prove it with performance.' But once the transaction is complete, the seller loses control over the outcome. The buyer decides on hiring plans, marketing budgets, and sales incentives—these are precisely the key variables that determine whether performance targets can be met. Speaking from the perspective of a buyer, the author admits: there is no malice, but priorities change. Budgets for acquired products are often reduced, and sales teams may lack the motivation to push new products, making targets suddenly unattainable.
Another common trap lies in metric definitions. How is Annual Recurring Revenue (ARR) calculated? Which costs are included in gross margin? Does this revenue count towards churn? Unless the agreement is written with extreme clarity, the buyer almost always wins in disputes over definitions. The author specifically notes that confusion over the definition of ARR is a major source of earnout disputes in the software industry.