Nutrition Capital Network (NCN), an organization that connects investors with high-potential growth companies in the nutrition and health & wellness industry, announced a surge of investments in branded organic and natural food and beverages in 2014, in addition to phenomenal growth in the number of technology financings.
Overall transaction activity (acquisitions plus financings) in the nutrition and health & wellness industry grew 47 percent in 2014 to 372 transactions, up from 253 in 2013, according to the NCN Transaction Database*. Equity financings accounted for most of this growth, more than doubling from 93 in 2013 to 204 in 2014.
Technology sets the pace in equity financings
Equity investments in Branded Food & Beverage (mostly natural & organic but including functional) topped all segments with 33 financings recorded in 2014, up from 23 in 2013. Financings also increased in Supplements, Ingredients and OTC & Personal Care (see table). However, it was Technology that led the dramatic increase in financings last year. Newly subdivided into five segments, the Technology category accounted for 60 percent of 204 financing transactions recorded by NCN in 2014, up from 50 percent in 2013, 39 percent in 2012 and 16 percent in 2010. Technology segments with the most transactions in 2014 were: Apps & Info with 31, Delivery Service (27), E-Commerce (21), Analytical, Diagnostic & Monitoring Devices (18) and Software (14).
Rate of mergers and acquisitions eases off slightly
The number of mergers and acquisitions (M&As) tracked by NCN in 2014 increased to 168 from 160 in 2013; branded Food & Beverage led the pack with 52 deals. However, setting aside activity in the Technology category, the industry showed a decline in M&As in the more product-oriented segments.
“This continues a notable trend in the nutrition and health & wellness industry of growing investments but slowing acquisitions,” said Grant Ferrier, founder and CEO of NCN. “Buyers seek larger acquisitions, but the pool of $50-million firms doesn’t match the level of interest, which is driving up valuations and to some extent contributing to more activity at the financing stage.”
“Strategic buyers are unlikely to lower their size threshold for acquisition, making it incumbent on the financial community and an investor network like NCN to fill the pipeline of growing, profitable and scalable brands. Small companies still proliferate across multiple sales channels: The challenge is to find the best ones and team them with the best resources to help create the next generation of $100- million nutrition and health & wellness leaders.”
Corporates still favor acquisition, private equity competes
Private equity firms also competed in outright acquisitions, snapping up companies further up the chain like $75-million Noosa (Aussie style yogurt) and $80-million Angie’s Artisan Treats (healthy snacks), both of which had revenues large enough to attract interest from strategic acquirors, Ferrier observed.
“We know corporations have eased off on direct venture investing, which in foods could mean target companies with less than $5 million to $10 million in sales; and many private equity firms also avoid early-stage deals. There is certainly less early-stage activity by big companies and professional investors than we’ve been used to seeing but no shortage of small ambitious companies with good market prospects,” said Ferrier.
Nonetheless, big food corporations made several significant acquisitions of natural & organic food and beverage brands last year, including Hillshire Brands, which purchased $60 million Van’s Natural Foods, General Mills ($200 million Annie’s), Pinnacle Foods ($55 million Garden Protein) and JM Smucker ($50 million Sahale Snacks).
Industry fundamentals remain strong, protein and healthy beverages still popular
The fundamentals of the nutrition and health & wellness industry remain strong with recent annual growth rates of 6 to 7 percent in the $240-billion U.S. market compared to 2 percent growth for the U.S. economy and 1 percent or less for the food industry overall, according to a November 2014 presentation by NCN to its Cornerstone Investor members.
“Healthy foods now account for 28 percent of U.S. food sales, up from 13 percent in 1995 and 20 percent in 2005,” said Ferrier. “The competitive gameboard for the global food industry is squarely in health & wellness; and equally acute interest from private equity firms intensifies the competition when innovative companies pop out of the crowd.”
Healthy beverages, still a popular category with nutrition industry investors, attracted a hefty portion of 2014’s investment dollars, representing over 50 percent of total financings in the Branded Food & Beverage category, according to the NCN Transaction Database. Fresh pressed juice dominated for a second year in a row with companies like Suja (an NCN presenter in Fall 2013), Lumi, Project Juice and Urban Remedy catching the attention of private equity firms in 2014.
Last year also saw notable investor interest in protein and plant-based meat alternatives ranging from Hampton Creek Foods, which raised over $100 million in 2014, and Beyond Meat, which completed a series D round including A-list investors, to Exo, the cricket protein bar startup which raised $1.2 million in seed financing.
Less acquisition interest, more investment activity in Supplements and Ingredients
Mergers and acquisition activity in the Supplements category returned to par in 2014 but took a dip in Ingredients, however, both categories continue to be of interest to financial and strategic investors. Notable deals in Supplements included Hormel buying CytoSport (Muscle Milk), Glanbia buying Isopure, Kainos Capital buying the Slim-Fast brand from Unilever, and Post buying PowerBar from Nestlé.
In the pills and capsules segment of the Supplement category, “doctor formulated” supplements and supplements sold through the practitioner channel highlighted the list in 2014, including the $700-million acquisition of publicly traded Atrium Innovations by Permira; Complementary Prescriptions by Soho Flordis International; and Healthy Directions by Helen of Troy. In more traditional sales channels, Canada’s leading retail brand of supplements Jamieson Laboratories was bought by private equity for $320 million, and FoodState, a leader in whole food supplements, was acquired by the top three supplement maker Pharmavite.
Foodtech, mobile IT, food technology, diagnostic technology and software investments take off in nutrition and health & wellness industry in 2014
The biggest news of 2014 was clearly the emergence of Foodtech and the proliferation of investments in its various categories. Much of the activity centered around the San Francisco Bay Area and other U.S. tech communities, which remain hotbeds of investors, entrepreneurs and a new generation of tech multi-millionaires. However, some of the larger online delivery services have sprung up in New York, Germany, the United Kingdom, Korea and elsewhere. Delivery services of meals, meal kits and groceries raised the most money (InstaCart and Delivery Hero together raised over $600 million in 2014), but in other tech sub-categories deal volume grew at higher rates.
Interest in the intersection of food, wellness and technology has spiked within the NCN community, according to NCN Executive Director Mike Dovbish: “Corporate strategic investors are increasingly interested in mobile- and web-based tools and technologies to get a better understanding of consumers' information needs and buying habits, with some opening innovation centers in the SF Bay Area and elsewhere. At the same time, traditional CPG investors are financing pure-play technology companies at the intersection of brands and retailers. Many of these business models may be a bit speculative, but we plan to showcase a couple at 2015 NCN investor meetings. ”
Foodtech is an increasingly recognized term used to refer to computer or mobile technology enabling consumers or B2B users to access and share information or order food, nutrition and healthy lifestyle products and services. NCN defines three Foodtech categories: E-Commerce; Delivery Services; and Apps, Information & Media. Together these three Foodtech segments saw 50 more financing deals in 2014, growing from 29 in 2013 to 79 in 2014 or 172 percent.
Deals in the emerging Analytical, Diagnostic & Monitoring Devices segment included: $250- million investment in Jawbone (a wearable IT device having significant health & wellness functions); DSM Venturing’s investment in ZeaVision, which offers branded eye health supplements and a testing device that measures macular pigment; and Cue raising $7.5 million to advance its tests for access to molecular level data at home.
“There is a trend towards real time information and short term consumer gratification of health or information needs,” said Ferrier. “A lot of effort is going into giving consumers tools to make better choices about supplements, foods and lifestyle but also to measure their progress towards goals set by themselves, their insurer, wellness program or healthcare provider. Many believe that at-home or in-store diagnostic and monitoring systems or simple instruments that regular folks can use or wear to either make their own assessments or share data with their healthcare providers will be commonplace in the near future, and investors are putting money behind it.”
Companies invited to apply for NCN Spring 2015 Investor Meetings
NCN invites companies to apply to present their business plans at its NCN investor meetings in 2015 by applying online at surveymonkey.com/s/LLJJKF9 (no cost to apply). More information is available at www.nutritioncapital.com or by contacting Executive Director Mike Dovbish at [email protected] (415.254.1116).
NCN is holding NCN XVI: Spring 2015 Investor Meeting on May 18 to 19, 2015 in New York City, where 20-22 selected growth companies will present to an audience of 50-70 investment groups, representing over $6 billion in capital. NCN’s second European meeting, NCN Europe II at Vitafoods Europe, will take place May 4, 2015 in Geneva, Switzerland. With top companies such as Amway, Bayer, Campbell’s Soup, Clorox, Coca-Cola, DSM, General Mills, Herbalife, Kellogg’s, Pepsi, Pharmavite, and Unilever among its distinguished Cornerstone Investors, NCN provides an excellent forum for networking and offers insights into trends in the nutrition, natural products, and health & wellness industries.