I spoke with Scott Van Winkle of Canaccord Genuity this week to parse the pending acquisition of NBTY, Inc. by the Carlyle Group, an asset manager based in Washington, DC with more than $90 billion invested in companies and real estate across the globe. NBTY is a leading manufacturer and marketer of nutritional supplements, with 22,000 products sold worldwide under a host of brand names, including Nature's Bounty and Puritan's Pride.
The deal has support of NBTY management and is expected to close late this year. Carlyle offered $55 per share, a significant premium over the current stock price, for a total transaction cost approaching $3.8 billion. Or so I thought. "The irony is that it’s really not much of a premium to the stock price from April of this year, when NBTY traded at $51," says Van Winkle. "It’s only 8% above the three-month high for the stock."
According to Van Winkle, Carlyle's valuation of NBTY on an absolute basis is not that expensive at 8.6 times EBITDA. Relative to peer companies, the valuation places a slight 5-10% premium on NBTY compared to market prices for Herbalife, NuSkin and a host of supplement companies. The bottom line, however, is actually how little such a big deal says about the state of the nutrition industry.
"This is a financial deal," says Van Winkle. "If you look at all the businesses you can buy, and you’re going to use leverage, you need cash flow to service that debt. NBTY generates a ton of cash and has done so very consistently over the years. They’re a market leader, so this is a very easy deal at this valuation to justify financially. That’s the game here. This isn’t a strategic play. It’s a financial investment."
I did ask Van Winkle about the finance & investment climate across the broader industry, a topic NBJ will explore in detail with our next issue, and he hinted at a general lack of confidence from investors in supplement companies. "We are seeing lower valuations," says Van Winkle. "Back in spring 2009, supplements started growing 10% in the mass market, where NBTY does business. Any time you have a big acceleration in growth that’s hard to justify, you want to discount that level of growth."
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