In October, TPG Growth purchased 25% of Schiff Nutrition for $48.8 million. TPG Growth is the equity investment platform of TPG, formerly known as Texas Pacific Group, a global investment firm with $47 billion in assets under management. Schiff trades publicly on the New York Stock Exchange, and the shares were acquired by TPG Growth 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. Schiff is a leading marketer of branded and private label vitamins, nutritional supplements and bars.
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. "We are delighted to partner with TPG, a world-class firm with substantial expertise and resources, to build an exciting future for Schiff Nutrition," said Weider in a statement. "TPG has extensive healthcare, pharmaceutical, consumer/retail and operational expertise that can help support the company's organic growth, new product development, global sourcing, potential acquisition activities and enhance shareholder value."
NBJ Bottom Line
Ah, "potential acquisition activities." 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 quite a war chest in cash from operations. Many insiders believed Schiff would distribute a dividend or begin its own acquisition spree, but then CarlyleGroup came along and the entire landscape changed. 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.
At $4 billion (NBTY's final purchase price) versus $200 million (Schiff's implied enterprise value), we're definitely fishing in smaller waters, so one plausible outcome here is for TPG, through its two board seats, to push for an NBTY-esque acquisition strategy that spends down Schiff's burgeoning war chest. Through bottom-feeding acquisitions in a down market, TPG and Schiff can begin to replicate a business model already proven successful by NBTY and follow that model to growth and bigger valuations. Time will tell if this ends up a successful deal for Schiff and TPG, but either way, big smart money continues to focus on the nutrition space for investment opportunities as the capital markets slowly loosen their purse strings.
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