In 2014, M&A returned in a big way as a viable corporate growth strategy. The value of announced global M&A reached $3.5 trillion last yearâan increase of approximately 47 percentâmarking the strongest level of deal-making since 2007. While a large number of multi-billion-dollar strategic transactions dominated the news, several other key trends emerged, including companies using M&A to lower tax burdens (so-called âtax inversionsâ), heavy cross-border activity, a robust middle-market M&A landscape, and strong participation from both corporate acquirers and private equity.
A number of factors contributed to this increase, such as continued low interest rates and easy access to debt, strong corporate balance sheets flush with cash, an improving unemployment picture, increasing consumer confidence, and a robust capital markets environment. But these factors have largely been in place for a while now. So what changed? Confidence.
Specifically, it was the confidence derived from a number of years of strong financial performance and broadly improving economic conditions that signaled to management teams and boards of directors that things may have finally turned a corner and that the future outlook is positive. This boost in confidence has, in turn, enabled companies to once again embrace M&A as a viable growth strategy.
Backed by solid fundamentals, and with growth across most all levels of the industry expected to continue, the nutrition industry also experienced the highest levels of M&A activity in years. The Nutrition Business Journalâs Top 10 Deals in 2014 accounted for approximately $7.4 billion in total transaction volume, indicating an average transaction size of more $740 million. That figure was somewhat skewed by ADMâs $3 billion acquisition of WILD Flavors GmbH. But even excluding the ADM deal, average transaction size is still nearly $500 million. That signals a depth and breadth of M&A activity that the industry has rarely, if ever, experienced.
Â âWe continue to see strong interest across all channels of distribution and up and down the supply chain, and strategic interest remains high,â says William Hood, a managing director at Houlihan Lokey who advised on three of the top deals of the year in 2014 and who has been one of the most active M&A advisors in the industry. âWhat is different this year is that a number of companies that havenât participated in the past have now entered the market, such as Pharmavite, and interest from outside the industry continues to broaden, with companies such as Kroger and Helen of Troy making sizeable acquisitions of nutrition companies.â
With those trends in mind, here are our top 10 deals of 2014.
On July 7, Archer-Daniels Midland Company (âADMâ) announced its largest acquisition ever, the roughly $3 billion purchase of the Swiss ingredients company WILD Flavors GmbH, one the largest global suppliers of natural ingredients to the food and beverage industries. This transaction ranks as NBJâs top deal of 2014 not only because of size but also because of the transactionâs significance in a number of key areas, all of which highlight a number of longer-term trends:
â¢Â Diversification away from commodity product and price volatility: One trend that surfaced long ago but has gained momentum over the past decade is the move of raw materials, minerals, and ingredients suppliers and processors away from the commodity volatility and pricing risk associated with their core commodity products and into lower volatility, higher-value-added products. The acquisition of WILD enables ADMâknown primarily as one of the worldâs largest agricultural processors of products such as corn, soybeans, wheat, cocoa, rice and oilseedsâto make a significant move into the natural ingredients and flavors business, complementing its own specialty ingredients business by adding more than 3,000 customers and roughly $1.2 billion in revenues. The combined specialty ingredients businesses will provide customers with higher-value-added products and solutions that are often much less volatile than commodity-like products and is expected to generate sales of approximately $2.5 billion. Thatâs far short of ADMâs stated objective of $10 billion but still a bold move in the right direction.
â¢Â Capturing a larger share of profit margin across the value chain: Another prevalent trend over the past few years has been the migration of companies up the nutrition-industry value chain, not only in an effort to diversify away from the commodity volatility and risk, as noted above but alsoâand perhaps more importantlyâto capture significantly more of the profit margin available to companies across the value chain. By providing higher-value-added products, manufactured/branded products, and complete solutions to customers, companies can often generate profit margins in the mid to high teens. Thatâs significantly more than is typically generated by more commodity-based products, which often have profit margins in the single digits. The addition of WILDâs broad portfolio of natural ingredients and flavors, as well as its strength in offering food and beverage companies complete flavor systems, will enable ADM to benefit from the higher profitability associated with these types of products and likely enhance the companyâs position with key customers through the offering of complete flavor solutions.
â¢Â Extending into large, high-growth categories: The increasing trend of consumers choosing healthier products and lifestyles has generated strong growth within the broader nutrition industry and boosted the size of a number of categories, such as active/sports nutrition and healthy snacks. In order to participate in this category growth, companies have been forced to innovate and acquire. Those that donât see their competitive positions within the industry erode. ADM has embraced this challenge head on by acquiring a leader in natural flavor and ingredient, with strong offerings in natural and organic food products, functional foods, and beveragesâcategories that have been experiencing and are expected to continue to experience growth rates well above industry averages. The WILD acquisition thus positions ADM to benefit from these growth categories.
The WILD acquisition is in line with ADMâs strategic goal to build a world-class specialty-ingredients business and follows the companyâs formation of its ADM Foods & Ingredients Wellness group in March of 2013, the addition to management of this group and the launch of several organic growth projects. Given the benefits of diversification, higher product and service margins and enhanced growthâand on such a large scaleâit is easy to see why this deal tops the NBJ list in 2014.
Treehouse acquires Flagstone Foods
Private label has been a key growth area for many companies. Store brands like Safewayâs O Organics, Costcoâs Kirkland Signature, Krogerâs Simple Truth, and Whole Foodsâ 365 have continued to take share from the giant food companies, and other large retailers, seeing the significant profit potential in private label, have started to enter the category. Healthy snacks is another category experiencing double-digit growth over the past few years. So it came as no surprise when TreeHouse Foods, a leader in the private-label category and one of the most active consolidators in the food industry, announced in June the acquisition of Flagstone Foods for $860 million. The transaction is significant as it enabled TreeHouse to acquire the number-one company in the private label categories of trail mix and dried fruit, adding more than $700 million in revenues in private label and healthy snacks.
In a textbook case of a big food company purchasing one of the fastest-growing brands in natural and organic, General Mills announced in September its $820 million acquisition organic darling Annieâs Inc. Likely one of the most visible transactions of the yearâand an expensive one by any measureâthe announcement put to rest months of speculation over who would be the ultimate buyer of one of the hottest brands to emerge in the past decade. Annieâs, most well-known for its healthier version of boxed mac-and-cheese and organic salad dressings, had been on most large food companies radar screen. In 2012, however, the company completed an initial public offering and debuted as an independent public company, backed by robust sales growth, a strong competitive position, and a good pipeline of soon-to-be-launched innovation. Annieâs brief stint as a public company was ultimately cut short by the General Millsâ purchase, however, as the food giant added another key brand to its Small Planet Foods stable of organic brands, which includes Cascadian Farm, Muir Glen, LARABAR and Food Should Taste Good.
Rumors have been circulating for quite some time about the potential timing of a Chobani IPO. And given the size of the companyâwell over $1 billion in annual salesâas well as the strength of the capital markets last year, one might have guessed that 2014 was the year for the maker of the top-selling Greek yogurt. But a 2014 IPO was not to be. On April 23, Chobani announced that it had secured $750 million in investment from TPG Capital, one of the premier private equity firms in the U.S. The new capital was secured to fund new product growth and to invest in the companyâs international distribution. It came in the form of a second-lien loan with warrants. Absent any missteps, the sizeable TPG investment will likely be enough capital to get Chobani to an IPO, if it so chooses.
Balchem Corporation acquires SensoryEffects
On March 31, Balchem Corporation announced the $567 million acquisition of Performance Chemicals & Ingredients Company, a privately held supplier of food- and beverage-ingredients systems under the SensoryEffects brand. The acquisition added $260 million in revenues, enabling Balchem to diversify away from chemicals, animal and plant nutrition, and industrial products and further into food and beverage, adding three key segments: flavor, cereal, and powder systems. It will also enable Balchem to benefit from selling fully customized solutions to customers.
Protein has been one of the hottest categories in recent years, as evidenced by a number of key M&A transactions, including Premier Nutrition, Chobani, Isopure, Wisconsin Specialty Protein, Solbar, Dymatize, Milk Specialties, PowerBar, and many others. What is interesting to note about the protein category is the strong strategic interest in these companies from a wide range of potential buyers. The traditional food and beverage companies are no longer the key purchasers of these assets. Participants from across the food and beverage industry are getting in on the protein feeding frenzy. The cereal-maker Post Holdings was one of the first to enter the category in a big way with purchases of Premier Nutrition, Dymatize, and PowerBar. In July, Hormel Foods also entered the fray, announcing the $450 million acquisition of CytoSport Holdings, the maker of the ready-to-drink protein beverage MuscleMilk. The acquisition was a bit offbeat for Hormel, who is best known for its namesake chili and products like Spam and Dinty Moore beef stew. But it expands the companyâs product offerings in protein and offers a strong entrÃ©e into a significant growth category.
In perhaps one of the yearâs most interesting transactions, Kroger, known as a leader in conventional grocery, announced the $280 million acquisition of Vitacost.com, an online seller of vitamins, supplements, natural foods, and other health-related products. The deal was small for Kroger, which has annual revenues over $100 billion, but it is significant for the company as it provides the technology expertise and platform Kroger needed to compete with the likes of Amazon, FreshDirect, and other online home-delivery companies and platforms. It appears that Kroger made the decision to purchase an existing platform rather than start its own from scratch.
CCMP acquires Jamieson Laboratories
Following the 2013 landmark acquisition of Atrium Innovations by Permira, January 27 brought another significant Canadian transaction: the purchase of Canadaâs largest retail vitamins, minerals, and supplements (VMS) brand. After a 92-year history as a privately owned operation, Jamieson Laboratories Ltd. announced the sale of the company to CCMP Capital Advisors, a New York-based private equity firm, for $271 million.
On June 11, Helen of Troy Ltd. announced the $195 million of Healthy Directions. This marked the companyâs third acquisition in health and wellness over a four-year period but its first major foray into the vitamins, minerals, and supplements industry. The acquisition expands Helen of Troyâs revenues by 10 percent and gives it a strong foothold in the attractive and growing direct-to-consumer VMS category.
Â Â Of particular note is that Healthy Directions gross profit margin in 2013 was a full 30 percent higher than that of Helen of Troy, likely one of the key attractions in the acquisition.
WhiteWave Foods Company, one of the top consolidators in the natural and organic industry, struck again on September 17 when it announced the acquisition of So Delicious Dairy Free for $195 million. So Delicious is a leader in non-dairy, 100 percent plant based, non-GMO foods and beverages and has been around for more than 25 years. This acquisition is a strong complement for WhiteWaveâs SILK and Alpro brands and will provide the company with an additional brand in plant-based offerings.
Pharmaviteâs acquisition of FoodState fell just outside of our top 10 but certainly deserves an honorable mention. The transaction is significant for a number of reasons. Among them, it marks the first time Pharmavite, one of the largest manufacturers of high-quality vitamins, minerals, and dietary supplements has entered the M&A market with a sizeable transactionâsurprising given the companyâs leading industry position, the continued frothiness of the M&A market, and the fact that its parent, Otsuka Pharmaceutical Co. Ltd., likely has very deep pockets. Additionally, the transaction is significant in that brings increasing credibility to the natura/practitioner channel of distribution and is further proof of concept for whole foods as vitamins.
In acquiring FoodState, Pharmavite will add the MegaFood and Innate Response whole-food supplement brands to its portfolio. The companyâs Nature Made brand ranks as the number-one Pharmacist-recommended brand across eight key vitamin and supplement segments.
OTHERS TO WATCH
In addition to the NBJâs Top Deals of 2014, there was a considerable amount of M&A and financing activity across the broader nutrition industry, making 2014 one of the strongest years ever. Post Holdings, Omega Protein and Snyderâs-Lance continued their transformations toward healthier offerings with the acquisitions of PowerBar ($150 million), Bioriginal ($73 million) and Late July Organic Snacks (increased investment), respectively. Additionally, a number of key brands were acquired, including Rudiâs Organic Bakery, which was bought by Hain Celestial for $61 million; Natureâs Best, which was acquired by KeHe Distributors for an undisclosed amount; Vanâs Natural Foods, which was gobbled up by Hillshire Farms for $165 million; and Isopure Company, which was purchased by Glanbia for approximately $153 million.
Rodney J. Clark is Managing Partner and Founder of Aspect Consumer Partners, an M&A, strategic and corporate finance advisory boutique focused on the healthy segments of food, beverage, beauty and consumer products.Email him at: