Healthy interest is driving M&A activity for dietary supplements and food.
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It seems only fitting that an industry dedicated to health and wellness would attract a level of investor interest that’s, well,
And that’s exactly what companies in the nutrition and health-and-wellness sector attracted in 2015. According to the Nutrition Capital Network Transaction Database, 2015’s transaction total closed in on 2014’s before the year had even passed its midpoint.
Grant Ferrier, CEO, principal and cofounder of Nutrition Capital Network (NCN; San Diego), noted the record-setting pace early on. Looking broadly at the nutrition and health-and-wellness industry, he says, “M&A activity is notably up in 2015 compared to the prior two years.” Meanwhile, in 2015’s first two quarters alone, the NCN Database listed 32 investment financings in branded food-and-beverage companies, compared to 33 in 2014’s entirety.
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As the industry enjoys the rosy glow of investor attention, some segments are getting more attention than others. One real “looker” is what NCN calls “foodtech”-that is, computer and mobile technologies that consumers or businesses use to “access and share information or order food, nutrition, and healthy-lifestyle products and services,” Ferrier says. Comprising everything from e-commerce and delivery services to apps, information, and media, the segment accounted for 62% of the financing transactions that NCN tracked in 2015’s first half. With delivery and apps-and-info “leading the way,” as Ferrier says, U.S.-based companies like Instacart (recipient of a $220 million investment) and Blue Apron (beneficiary of $135 million), and Hello Fresh (welcoming an infusion of $125 million) in Europe, grabbed headlines and cash.
Biotech and ag-tech also courted suitors, accounting for 15 transactions in the NCN Database during the first half of 2015. Ferrier highlights the $50–$100 million that companies like microbiome-focused Seres Therapeutics and Allergen Research received, as well as the $39 million and $22 million, respectively, that went to the more nutritionally focused Pronutria and Gelesis.
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As far as transactions in the branded natural and organic food-and-beverage sectors went, equity investments and M&As were both up, per NCN’s database, with the prevailing theme of the transactions centering on protein. “Three of the largest deals so far in 2015 are WhiteWave Foods’ purchase of the plant-based protein shake and snack bar company Vega, Hormel Foods’ acquisition of Applegate Farms natural and organic deli meats, and Hershey’s acquisition of Krave, a maker of artisanal, gourmet jerky,” Ferrier notes.
And if such traditional proteins are too pedestrian for you, consider the buzz surrounding “engineered proteins” and meat substitutes. Companies like Beyond Meat and Soylent “continue to raise eyebrows with large capital raises and high valuations,” Ferrier says. Their appeal lies largely in the traction that their environmentally sound meat alternatives have gained with millennials and “new generations of health-minded consumers who want protein for energy and exercise, but not in unsustainable animal forms,” Ferrier says.
Exhibit A: Beyond Meat (Manhattan Beach, CA) aims to replace animal protein with plant-based alternatives like its Beast Burgers made from pea protein, or its “chicken” strips made with soy protein isolate and pea protein. It raised $17 million in a Series E round from existing investor Obvious Ventures, Ferrier notes, with Closed Loop Capital, Kleiner Perkins Caufield & Byers, Bill Gates, and S2G Ventures also pitching in.
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Supplements Staying the Course
So amidst all this innovation and “disruptive” tech, one might ask: Whither supplements? They’re still out there, Ferrier says, although “we haven’t seen as many transactions in 2015 so far as market growth should merit.” He says interest remains “very high” in specialty and condition-specific ingredients and in finished supplement products, but suggests that the lethargic deal flow may stem from regulatory uncertainty and its chilling effect on investment, especially given “recent attention to product quality and ingredient integrity in supplements brought about by attorneys general in New York, Oregon, and elsewhere,” Ferrier says.
But if the supplement skies look cloudy to some, others see breaks of sun. Scott Steinford, CEO and founder, Trust Transparency Consulting (Spring, TX), believes that interest in supplement M&As “remains strong” thanks to the high confidence that investors have in the quality and reliability of U.S.-made product. “The Asian market in particular has demonstrated a significant appetite for U.S.-manufactured products and, subsequently, U.S. manufacturing companies,” he notes.
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Vertical Integration: On the Up-and-Up
As a result, prospects for vertical integration seem to be driving recent North American supplement M&As. “While the majority of dietary supplement brands internationally are manufactured in North America,” Steinford explains, “the vast majority of ingredients used within those products are sourced elsewhere. Ingredient manufacturers are increasingly finding opportunities to purchase North American manufacturers and brands.”
As an example, he points to Vitatech Nutritional Sciences Inc.’s September 2015 sale of its nutritional-products manufacturing business to Kingdomway USA LLC. According to a Vitatech press release, the new company will call itself Vit-Best Nutrition Inc. and will continue to use Vitatech’s pharmaceutically licensed, cGMP facility in Tustin, CA, to manufacture the powders, capsules, tablets, custom coatings, and other products that built its contract-manufacturing reputation and made it an attractive target for Kingdomway. As Steinford says, “This acquisition reflects a continuing trend in this and other industries where vertical integration provides better operational costs and increased market opportunities.”
So: Some acquirers happily absorb proven players with established track records while others, Ferrier says, “seek to be on the leading edge of innovation, or at least not to be left behind when a major trend appears ready for a breakthrough.” With health-and-wellness and nutrition companies covering that waterfront and more, the numbers from 2015 prove that everyone can win.