Though 2010 never amounted to the economic renaissance that buyers and sellers had hoped for, big deals did get done last year, and the M&A landscape certainly looked greener than the frigid steppe that was 2009. The U.S. nutrition industry is one of few markets lucky enough to expand in recent years, but small and mid-sized players are likely still anxious to see more capital thaw. These are the Top 10 Nutrition Industry Deals of 2010, as seen by Nutrition Business Journal.
The biggest supplement company in the United States has lumbered off into the shadowy folds of private equity. The formerly public NBTY — a titan behind such supplement brands as Vitamin World, Puritan's Pride, Solgar, Rexall and MET-Rx — was bought by private equity firm the Carlyle Group in October 2010 for an astounding $4 billion, representing the largest transaction this year to take a public company private.
Carlyle gave each of NBTY's stockholders a hearty pat on the back, to the tune of $55 per share, though many analysts consider this a steal. “The irony is that it's really not much of a premium to the stock price from April of this year, which was $51,” says Scott Van Winkle, managing director of Cannacord Genuity. “The valuation on an absolute basis — 8.6 times EBITDA — was not that expensive. This looks like a pretty good deal for Carlyle.” Indeed, NBTY is unlikely to prove a poor investment. The company has clocked in double-digit annual sales growth for most of the last decade, and capped off 2009 with $2.5 billion in sales on nearly 20% growth.
What Carlyle plans to do with NBTY — besides sit back and watch the cash roll in — remains to be seen. With such impressive growth in hand, what is NBTY really missing? The company's new CEO, Jeff Nagel, formerly of General Electric, is well versed in the wilds of blue-chip management, so he may bring new efficiencies to the supplement giant. On the other hand, Marco Galante, principal of J.H. Chapman Group, suggests to NBJ that Carlyle may use its outsider perspective to help NBTY's management team enhance the company's brand identity. “NBTY is not a Cadillac brand,” said Galante. “It is sizeable, but it is not top of mind from a quality aspect for the consumer.”
Galante might be on to something. In a recent interview with NBJ, Harvey Kamil, president of NBTY, alluded to more industry engagement from the company now that it's private. “With regard to the healthcare debate,” said Kamil, “we believe that this legislation is an opportunity for industry. We need to get the word across to legislators that our products are one measure of fighting consumer health issues.” Perhaps NBTY is turning a new face to both industry and the general public as it enjoys the freedoms of its new stature.
Global chemicals colossus BASF targeted and acquired fellow German supplier Cognis in June 2010 for €3.1 billion ($3.8 billion), enduring a higher bid from chemicals peer Lubrizol. Cognis markets chemical ingredients to various industries, namely nutrition, mining and personal care. BASF purchased Cognis with €700 million in equity, and assumed Cognis's debt and pension obligations. BASF, long a leader in raw vitamin and carotenoid supply to the U.S. market, has further expanded its nutrition industry stake with control of Cognis's proprietary functional ingredients.
The acquisition (hopefully) marks an emerging trend among old school enterprises investing in new economy businesses like those vetted toward nutrition. BASF board member John Feldmann said in a June 23 press release: “With this acquisition, we want to achieve a leading position in personal care ingredients, strengthen our leading position in value added products for home care, and establish a strong position in health and nutrition products.”
In late December 2009, Dutch company Royal Wessanen announced its sale of natural & organic distributor Tree of Life to KeHE Food Distributors for $190 million. The transaction closed in early 2010 and pushed KeHE into the No. 2 spot among natural & organic distributors in the United States. As it now stands, the top three companies (in terms of revenue) in the natural, organic and specialty distribution pantheon are United Natural Foods ($3.5 billion), KeHE ($1.9 billion with Tree of Life) and DPI Specialty Foods ($1 billion).
The acquisition upsets the balance of power in retail. In a smaller universe, manufacturers have fewer options for taking their products to market. According to Rodney Clark, managing director at Presidio Financial Partners, the new dynamic “may pose challenges for some manufacturers, many of which are used to being able to play the top distributors off one another to get the best possible support for their products.”
Kudos to KeHE, though. The merger shows great potential, combining KeHE's expertise in chain and independent groceries with Tree of Life's strength in natural products stores. If KeHE can get through the integration alive, the efficiencies of scale are to die for.
North American food giant ConAgra announced in April that it had acquired Grand Rapids, Michigan-based snack and nutrition bar manufacturer Elan Nutrition. Transaction financials were not disclosed. ConAgra is integrating Elan into its snack division to enhance private-label bar manufacturing capabilities. Of course, ConAgra already owns a private-label bar manufacturing facility in Lakeville, Minnesota, which begs the question: Is demand for private-label bar manufacturing really strong enough to warrant two facilities?
Elan, founded in 1998, had been owned by a subsidiary of Sun Capital Partners since 2003. In 2008, Elan ran into trouble, losing 30% of its annual revenue when its largest customer developed capacity for in-house bar manufacturing. ConAgra was able to purchase the troubled company with negligible impact to net profits.
Catalina LifeSciences, the practitioner supplement company behind the innovative brand Bariatric Advantage, was acquired in August by practitioner-channel bellwether Metagenics. Bariatric Advantage began operations in 2002 to help meet the unique nutritional needs of the 230,000 Americans who undergo weight-loss surgery each year. “After undergoing bariatric surgery, a patient requires special nutritional attention for the remainder of his or her life,” Thomas Kinder, president and CEO of Catalina Lifesciences, told NBJ in early 2010. Once a weight-loss surgeon introduces his patient to the Bariatric Advantage line of products, that person could ostensibly be a customer for decades, Kinder added.
Both companies play integral roles in educating healthcare providers on the benefits of supplementation, and the combination should help foster growth in the practitioner channel. Under the Metagenics' umbrella, Bariatric Advantage will retain its branding and continue to be run by Kinder and his leadership team. Said Kinder, “The additional resources provided by Metagenics' research, business systems and global presence will expand our ability to bring the advantages of our products to a much broader audience of bariatric patients and healthcare professionals worldwide.” Terms of the transaction were not disclosed. NBJ pegs recent sales growth for Bariatric Advantage at nearly 50%, and Metagenics was wise to jump on it while the iron's still hot.
In September, leading Norwegian krill oil supplier Aker BioMarine entered into a 50-50 joint venture with New York City-based equity group Lindsay Goldberg. The entity created, Trygg Pharma, will be the exclusive developer of Aker's krill oil-derived pharmaceutical ingredients going forward. Lindsay Goldberg agreed to pay up to NOK 280 million (about $47 million) for its 50% stake in the joint venture.
Immediately following the creation of Trygg Pharma, the new company acquired all outstanding shares of EPAX, the high-concentrate omega-3 manufacturer wholly owned by Austevoll Seafood. Trygg agreed to pay NOK 561 million ($94 million) for EPAX, which itself garnered NOK 315 million ($53 million) in 2009 revenues. Under the new ownership, EPAX will start to invest more heavily in augmenting its production capacity. It should find no short shrift in the United States, where consumers have become increasingly responsive to concentrated fish oils. EPAX ranks among the top suppliers of omega-3s to the U.S. market and, according to NBJ, grew its U.S. sales 13% in 2009.
Leading baby formula ingredient manufacturer Martek Biosciences announced in January its agreement to acquire supplement manufacturer and marketer Amerifit Brands for $200 million. Specializing in women's and digestive health supplements, Amerifit operates the brands Culturelle, AZO, Cardiostat and ESTROVEN. Said Steve Dubin, Martek's CEO, in the company's January press release: “I am excited at the prospect of being able to develop consumer brands for some of the exciting new products in Martek's pipeline. This new capability will enable Martek to move up the value chain by getting closer to the consumer, and should result in increased revenue and gross profit opportunities.”
Martek's 2009 sales suffered from mild setbacks in its core infant formula business, but much of the slack was picked up by other product lines. Its algae-derived DHA ingredient, life'sDHA, won new partnerships with food and supplement companies, and for fiscal year 2010, Martek reported an impressive 32% increase in annual sales to $435 million. Adding Amerifit enables the ingredient company to vertically integrate and diversify, so more product development should result. In fact, Martek launched Brain Strong, a new line of life'sDHA products, in the spring of 2011.
Diversified Natural Products (DNP) and Thorne Research announced a merger in June with financing from WestView Capital Partners and Tudor Ventures. The combined company will operate as Thorne Research, with plans to implement an aggressive growth strategy through the healthcare practitioner channel. The new management team includes CEO Paul Jacobson, former CEO of DNP; COO Tom McKenna, formerly of Bristol-Myers Squibb; Will McCamy, founder and president of Xymogen, who will become Thorne's new president and head of sales and marketing; and Dr. Robert Rountree, industry expert, who will become the company's chief medical officer. Thorne's founder, Al Czap, will step down from operational duties but maintain an advisory role in the new company. Thorne is a recognized leader in the supplement industry for the high quality of its hypo-allergenic products. DNP brings formidable resources in clinical research and popular products in the cardiovascular, gastrointestinal and joint-pain categories to the merger. Financial terms of the deal remain undisclosed.
The healthcare practitioner channel hits many of the right buttons in an increasingly competitive marketplace by providing companies direct and repeated access to doctors and medical providers. It's a safe and profitable place to be as integrative approaches to medicine gain traction in clinics across the country. Al Czap, whose personality shaped the company throughout its first 26 years in business, has entrusted Jacobson to lead the company from a product quality standpoint. In that vein, Jacobson has partnered Thorne with Swiss pharmaceutical company Helsinn Group to develop and market a line of cancer-support supplements.
In February, Diamond Foods agreed to acquire natural potato chip company Kettle Foods from Lion Capital for $615 million in cash. The deal closed at the end of March. The Stockton, California-based Diamond will more than double its snack food division with the acquisition and enable cross-promotional opportunities for its Emerald Nuts and Pop Secret brands. “The addition of Kettle Foods greatly strengthens our presence in the snack market, and we are proud to officially welcome them to our family of brands,” says Michael Mendes, chairman and CEO of Diamond Foods in a March press release.
On a pro forma basis, Kettle would add about $250 million in annual revenue to Diamond's business. Diamond funded the transaction with proceeds from a common stock offering, borrowings under a new $600 million credit facility, and existing cash. In April, Diamond announced plans to expand Kettle's existing Salem, Oregon-based manufacturing operations, as the brand has found greater purchase in international markets, specifically the United Kingdom, where the “crisp” market is especially strong.
TPG Growth bought a 25% stake in supplement marketer Schiff Nutrition for $48.8 million. Schiff trades publicly on the New York Stock Exchange, and the shares were acquired from Weider Health and Fitness (WHF), who will maintain its position as major shareholder with 25% of outstanding shares and 78% of the voting power post-transaction. As part of the deal, TPG Growth places two executives on Schiff's board — Bill McGlashan, co-founder of Pharmanex; and Matt Hobart, formerly of Critical Path — with Eric Weider, President and CEO of WHF, holding his seat as Schiff's chairman. Sources tell NBJ that TPG was another early bidder for NBTY, but in the wake of its loss to Carlyle, found an alternative investment in Schiff.
Schiff continues to exhibit sales momentum with its mass-market line of joint supplements under the Move Free brand, and its omega-3 krill oil product under the MegaRed brand name. These are very successful products for the company, and as a result, Schiff has developed a sizeable mattress full of cash from operations. Now that TPG has two men on the Schiff ship, we may finally see a push for an NBTY-esque acquisition strategy that spends down Schiff's burgeoning treasure trove.
Top 10 Deals of 2010
|Jul-10||NBTY||Carlyle Group||$4.0 bil.|
|Dec-09||Tree of Life||KeHE||$190 mil.|
|Sep-10||Epax||Trygg Pharma||$94 mil.|
|Jan-10||Amerifit Brands||Martek BioSciences||$200 mil.|
|Feb-10||Kettle Foods||Diamond Foods||$615 mil.|
|Oct-10||25% of Schiff Nutrition||TPG||$49 mil.|
Source: Nutrition Capital Network and company press announcements
Honorary Mention: GNC IPO (Again)
GNC's management history runs long and colorful. In 1999, Dutch company Royal Numico purchased GNC at a premium for $2.5 billion. In 2003, Numico sold GNC for a terrific loss to private-equity firm Apollo Management. Two unsuccessful IPO attempts later, Apollo sold GNC in 2007 for $1.65 billion to Ares Management and an affiliate of the Ontario Teachers' Pension Plan. In September 2010, AP reported a story suggesting that GNC was raising money for still another IPO, though the company has yet to name the number of shares it plans to sell or a price. Also in the mix was a December 2010 rumor that Chinese food conglomerate Bright Food intended to purchase the supplement retailer for $2.5-$3 billion, which would have resulted in the largest takeover ever of a U.S. company by a Chinese buyer. The Bright Food deal fell through, however, and the IPO went live in April 2011. GNC garnered $240 million net on the IPO, part of which will go to relieving its long term debt of $1.3 billion.