Volume 19, Issue 10
Strong investment from China and private equity drove 2016’s health & wellness M&As.
Driven by all of the interest and innovation surrounding today’s nutritional, functional, and natural brands, the health & wellness (H&W) arena is “a very attractive space” for investors, says David T. Thibodeau, managing director, Wellvest Capital (Boston). With 120 M&As already on the books through Q2 of 2016, compared to 154 in 2015’s entirety, he sees the healthy-living segment as on track to top last year’s transaction total by year’s end.Â
“Will we get as high as 2014’s?” he asks. At 168, 2014’s transactions overall mark the peak of activity in the past half-decade. That depends on how markets respond to recent events-like this year’s U.S. presidential election. But no matter how investors interpret Decision 2016, “there are some strong valuations” buoying the health-and-wellness world, Thibodeau concludes. “So sellers have incentive to sell, and buyers that are able to pay premiums are able to buy.”
East Buys West
A growing number of those buyers now hail from China. Thibodeau isn’t alone in citing Chinese investors’ “voracious” appetite for North American, European, and even Australian H&W companies as an underlying motif of 2016’s investment activity. But that underlying motif somewhat upends a dominant theme of America’s recent election-namely, that domestic manufacturers are drowning on a floodtide of foreign (read: Chinese) imports.
“While many lament the unfavorable ChinaâU.S. trade deficit that the U.S. maintains by mainly importing goods,” the situation is reversed when it comes to dietary supplements. China has a strong demand for American-made supplements, says Scott Steinford, executive director/president, CoQ10 Association and Natural Algae Astaxanthin Association (Salt Lake City, UT). “Few products are as readily accepted by Chinese consumers as U.S.-made dietary supplements,” Steinford says. “So the impetus to invest in these products is higher.”
Also encouraging Chinese investment is the fact that the nation’s emerging affluence and aging population bode well for the category’s future success. Euromonitor reports that the Chinese dietary supplement market will increase 53% to $28.7 billion by 2021, Steinford notes; no wonder, then, that key players in 2016’s M&As include Chinese investors and American targets.
The Private Equity Stable
But they’re not alone. Another driving force behind this year’s H&W investment activity is the willingness of private equity groups to fatten up fledgling companies-and then unite them with eager buyers when they reach a respectable weight.
As Thibodeau explains, “The companies in our space are the innovation labs for many of the larger companies.” Absent a critical mass of financial support for their explorations, private equity steps in as the de facto capital supplier, shepherding the startups until they’re “a size that’s really attractive to the strategics.”
Some of those strategic investors are even forming investment vehicles of their own to nurture early-stage companies and “watch them more closely as they grow,” Thibodeau adds. “That’s how it’s working today, and that’s a much different model from it was 15 years ago.”Â
Ahead, Thibodeau and Steinford point to just a few examples of 2016 M&A deals that exemplify this changing model.
CLICK ON IMAGES TO VIEW SLIDESHOWPhoto Â© Shutterstock.com/Titov Nikolai
Xiwang Buys Iovate
An impressive $730 billion was the estimated purchase price that Xiwang Foodstuffs Company, Ltd., a Shandong Provinceâbased leader in healthful edible oils, paid for Iovate Health Sciences International this past June.
In purchasing Iovate, Xiwang got a nutritional-product company known for its brands MuscleTech, Six Star Pro Nutrition, and Hydroxycut. And what did Iovate get? To hear the company’s executives tell it, Iovate got hastened immersion in China, where its MuscleTech brand is already a presence, not to mention a firmer grounding in a market that “we believe will deliver significant growth in a reasonably short period of time,” the executive team said in a company statement.
Even so, Iovate isn’t pulling up states and heading East; the company pledges to maintain its North American headquarters in Oakville, Canada, where all executives and senior leaders plus 330 current employees will stay.
Photo Â© iStockphoto.com/97
IVC Buys Perrigo’s U.S. Supplements
Little more than a week after the ink dried on the Iovate deal, China’s International Vitamin Corporation (IVC), a vertically integrated consortium of nutritional ingredient suppliers and contract manufacturers, bought the U.S. supplements division of Dublin, Irelandâbased Perrigo, adding $40 million in revenue to its books, along with 300 additional employees, says Scott Steinford, executive director/president, CoQ10 Association and Natural Algae Astaxanthin Association.
Notably, IVC retained Perrigo’s existing U.S. management and hired locally to fill open positions, which Steinford claims is a “hallmark” of recent IVC and other Chinese acquisitions. “In addition to the new jobs created in the nutritional industry,” he says, “the U.S.-manufactured products provided by IVC and other U.S. acquisitions are finding their way back into China.”
Photo Â© iStockphoto.com
Swander Pace Sells Renew Life to Clorox
For a glimpse at how private equity plays matchmaker to an old-line consumer packaged goods company interested in a fresh-faced upstart (if almost 20 years in the digestive-health space still qualifies as “fresh”), look no further than Swander Pace Capital’s May 2016 sale of gut-health innovator Renew Life (Palm Harbor, FL) to the Clorox Company (Oakland, CA) for $290 million.
As David T. Thibodeau, managing director, Wellvest Capital, describes the deal, “You have an old standby CPG company that buys another company in our space-so that was a big transaction.” What’s more, Swander Pace’s setup of the two lovebirds is a perfect illustration of what happens when “private equity invests and ultimately sells to a strategic,” he says.Finally, Renew Life’s reputation as a probiotic leader underscores the fact that “there’s been a lot of interest in probiotics this year,” Thibodeau adds. “It’s gonna be a hot category.”
Photo Â© Shutterstock.com/Titov Nikolai
Swander Pace Swallows Big
The Renew Life sale wasn’t Swander Pace’s only big deal of the year. The PE firm “made significant acquisitions in 2016 that together form an entity far greater than they were individually,” Steinford says.
Getting things off to a strong start, Swander Pace bought Fargo, North Dakotaâbased Swanson Health Products in late January, acquiring what Steinford describes as “a top-five U.S. nutritional supplement e-commerce/catalog retailer offering over 27,000 products comprising both own-label and third-party offerings to consumers in five countries.” And though the exact terms remain undisclosed, Steinford says that the deal “has been widely rumored to approach $700 million.”
Not more than a month prior, the company targeted its investment sights on Captek Softgel International (Cerritos, CA), a softgel contract manufacturer that “adds to the existing Swanson manufacturing, which previously lacked softgel capability,” Steinford says. Speaking about the deal to BusinessWire, Mark Poff, a managing director at Swander Pace, put it this way: “While the VMS category has strong growth, softgels are growing even faster due to their multiple end-use applications, high potency, and ease of swallowing, and we see Captek on the leading edge of that opportunity.”
Photo Â© iStockphoto.com/brianbalster