Editorial: How Hungry is NBTY?

By Len Monheit, NPIcenter

[email protected]

So NBTY is on the acquisition trail - again.

This week, the company announced the acquisition of Solgar Vitamin and Herb ($115 million) and tiny (relatively) SISU in Canada (about $8.2 million). When you consider the some $64 million in assets that NBTY will acquire in the Solgar deal, and the annual sales of about $105 million (2004), the deal makes some economic sense, especially if you anticipate strong and stable industry performance in the next few years. An article in The Motely Fool entitled 'NBTY Buys a Pipsqueak' comments on the timing of the Solgar deal relative to the market. The fact that Wyeth divests Solgar less than a year after Abbott buys EAS might indicate a difference in opinion over the future direction of the industry by the pharmaceutical sector, or more likely, a measure of faith that the sports nutrition and specialty products offered by EAS have more potential for growth and opportunity than the vitamins and herbs offered by Solgar. The Nutrition Business Journal has released its Sports Nutrition & Weight Loss Report 2005, noting that first of all, sports & energy drinks sales rose 18% to $5.6 billion in 2004, and secondly that the entire SNWL category is expected to grow with compound annual growth rates of 5-7% over the next 8 years, reaching sales of $22.8 billion in 2013, from the current $15.6 billion. In the Abbott EAS acquisition, one must remember too that the move was an expansion of existing industry presence.

Back to NBTY.

NBTY's acquisition of SISU is the second acquisition in Canada this year, the first being a February acquisition of Le Naturiste Jean-Marc Brunet, a chain of 103 stores located throughout Quebec, for about $5 million. One wonders at this 'interest' in Canada, and the timing of Sisu's sale. The Canadian Natural Health Products regulations are currently in a scheduled phase-in, and perhaps the acquisition of SISU is a signal that on the one hand the 'cost of compliance' for a relatively small brand (SISU) might be higher than ideal, hence a low valuation and interest by SISU in the proposed deal at this time. On the other hand, is there an economy of scale for compliance that NBTY can bring into Canadian operations to make the cost of compliance lower? Or does this mean that in order to reach this economy of scale, further acquisitions by NBTY are required?

One must therefore ask the question - Is anyone else in Canada for sale?

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