Introduction: Since 1996, Nutrition Business Journal and Health Business Partners have cooperatively tracked M&A activity in the nutrition industry. This is the second year we have made deal-of-the-year awards. The year 2006 saw strong demand for growing, profitable businesses, with both strategic buyers and private equity firms sharpening their appetite for deals. Leading investors built out their platforms: Through its holding in Amerifit Nutrition, Charterhouse Group added the Culturelle probiotic brand. It also added to its roll-up in natural/organic bakery (Rudi's, Adams, Vermont) with the purchase of Superior Bakery and Matthew's Bread Co. In natural personal care, The Hain Celestial Group hammered another plank in its NPC platform (Zia, Jason) with Para Laboratories (Queen Helene). And direct seller Jurlique received a major private investment in 2006, which helped maintain momentum in the segment.
Gold Deal of the Year, Beverages: NBJ and HBP recognize one of the richest deals of the year - the acquisition of 30% of Energy Brands (Glaceau) by Indian firm the Tata Group in a transaction worth $667 million, valuing the maker of Glaceau vitaminwater at $2.2 billion. Tata Group, which had U.S. revenues of more than $1.97 billion and global revenues of $22 billion in 2006, purchased the stake previously held by TSG Consumer Partners. Energy Brands had estimated sales of $350 million in 2006, which would indicate a valuation of more than 6 times revenue. Formed in 1996, Glaceau reported more than 200% compounded annual growth. Tata also owns Tetley, Good Earth Tea, and Eight O'Clock coffee. "The sugary-drink category is under acute threat in markets such as the U.S. and the U.K. and most certainly large parts of Continental Europe and Japan," said Tata, confirming the acquisition.
Silver Deal of the Year, Beverages: NBJ/HBP recognize two deals completed by PepsiCo representing Pepsi's ongoing commitment to healthy and natural products. In late September 2006, Pepsi acquired Izze Beverages, a maker of natural carbonated fruit sodas in a deal reported at $75 million. Izze was previously financed by two large rounds of venture financing and had recently added SoBe founder John Bello to its board. In November PepsiCo bought the $150-million premium juice maker Naked Juice from private equity firm North Castle Partners. Naked Juice will be added to the Tropicana division and be designated as one of Pepsi's healthy-food offerings.
Gold Deal of the Year, Foods:Boulder Specialty Brands, a publicly traded company formed by Steve Hughes, former CEO of Celestial Seasonings, for its September 2006 acquisition of GFA Brands, maker of Smart Balance healthy spreads. GFA's Smart Balance product line includes margarine, popcorn, mayonnaise, peanut butter and cooking oils, as well as natural and organic foods under the Earth Balance brand. GFA was an NBJ silver medalist for growth in 2005 when we reported it more than doubled sales to $130 million. GFA's shareholders received $465 million at closing. In December 2005, Boulder raised $102 million in its initial public offering. To finance its first deal and subsequent growth it raised $138.5 million in a preferred stock transaction, $107.5 million in a common stock transaction and arranged $180 million in debt financing.
Silver Deal of the Year, Foods:Lion Capital for the acquisition of Kettle Foods in a deal reported at near $300 million for the $150 million leading company in premium natural potato chip in the U.S. and the U.K. Established in 1978, Kettle Foods is headquartered in Salem, Ore. and has manufacturing facilities in Oregon and Norwich in the U.K. Lion Capital was only formed in 2005 and also owns U.K. cereal maker Weetabix (also owner of natural cereal and snack brand Barbara's Bakery) and the carbonated juice brand Orangina.
Gold Deal of the Year, Natural Personal Care: In the rapidly consolidating Natural & Organic Personal Care category, gold goes to Colgate-Palmolive's purchase of Tom's of Maine in March 2006. The $100-million transaction for 84% of the company represents a $120-million valuation or 2.4 times revenue for the $50-million pioneer of natural oral care products. The founding Chappell family retained a 16% ownership interest, and Tom Chappell stayed on to lead the company and remain in Kennebunk, Maine. Colgate cited Tom's 60% share in specialty channels as a key to the purchase.
Gold Deal of the Year, Supplements: After a slow first half of 2006, transaction volume picked up in the branded Dietary Supplement segment. NBJ/HBP recognize Nutrition 21's strategic move out of ingredients with its acquisition of Iceland Health in August 2006 in a deal worth $25 million. Historically a leader in chromium picolinate ingredients, the purchase fits with N21's shift away from ingredients to branded consumer products. Direct seller Iceland Health, which has exclusive U.S. rights to market and sell fish oil and omega-3 fatty acids manufactured by an Icelandic company to pharmaceutical standards using a patented distillation process, had sales of $26 million in the 12 months through June 2006.
Gold Deal of the Year, Ingredients: Ingredient supply transactions picked up the pace in 2006, with the number of prospective sellers up by 50% and healthier gross margins piquing the appetites of both strategic buyers and private equity firms. NBJ/HBP recognize the acquisition of Seltzer Companies Inc., a $53-million supplier and distributor of vitamins, amino acids and other nutritional ingredients, by European dairy company Glanbia plc in a transaction valued at $105 million. Seltzer was reported to have had $6.4 million in profits before taxes and $17 million in gross assets. The purchase represents a geographic and product expansion for Glanbia, whose ingredients have been mostly in the whey category.
NBJ Index Wall Street Awards for Stock Performance
Gold Medal: NBTY Inc. for a gain in share price of 156% in 2006 to close the year at $41.57/share. For the year ended September 30, 2006, net sales increased 8% to $1.9 billion and net income increased 43% to $112 million. NBTY's cash flow improvements allowed for the accelerated repayment of $236 million of long-term debt, and NBTY secured a $325-million bank revolving credit agreement to provide funds for future growth. Following these November 14, 2006 announcements, and likely the increase in earnings in particular, NBTY shares jumped 11% to a then 52-week high of $32.98 on volume of about 3 million shares, almost five times the daily average.
Silver Medal: Nutrition 21 Inc. for a 165% gain in share price in 2006 to end the year at $1.70, up from a 52-week low of $0.65. For the fiscal year ended June 30, 2006 Nutrition 21 reported total revenues of $10.7 million, the same as 2005. Net loss for fiscal 2006 was $10.3 million compared to a net loss of $7 million for 2005. CEO Paul Intlekofer said that calendar 2006 marked the beginning of Nutrition 21's transition from an ingredient supplier to primarily being a supplier of proprietary finished goods. In August 2006 Nutrition 21 acquired Iceland Health, a leading direct marketer of fish oils with sales of $26 million.
Bronze Medal:
Hansen Natural Corp. for a gain of 71% in 2006 on the heels of 330% gains in 2004 and 2005. Net sales through the third quarter of 2006 were $454 million, up 81%, after 2005 sales grew 86%. All was not well in the Hansen firmament, however. On October 31, 2006 Hansen disclosed it had received a letter from the SEC regarding stock options. On November 9, Hansen announced a delay in the filing of its quarterly report, dropping the stock 14% on unusually heavy trading volume. On January 4, 2007 Hansen notified Nasdaq that it may have violated a rule relating to the "inadvertent issuance of an out-of-plan stock option to purchase 12,000 shares" of common stock to an outside director in November 2004. Hansen is exploring with Nasdaq the appropriate steps to resolve the matter.
Bronze Medal: Medifast Inc. for a gain of 140% in share price in 2006 to close the year at $12.57. Medifast sells weight loss foods and supplements and operates weight loss centers. For the nine months ended September 30, 2006 Medifast reported a revenue increase of 97% to $58.8 million and net income of $4.6 million versus $1.6 million in 2005. Medifast also has shareholder issues. In January, Medifast announced CEO Bradley MacDonald would be stepping down following allegations he made internet postings to promote the stock penned under a pseudonym, as well as the rejection of a study that had previously prompted a stock upsurge. CFO Michael McDevitt will become CEO in March and said MacDonald will retire from management but remain board chairman.
Educational Initiatives
Enzymedica Inc. believes informed retailers are the critical link in making genuine connections with consumers. This year the manufacturer of indication-specific enzyme supplements helped forge that link for the enzyme category. In July 2006, Enzymedica launched a Retailer Education Program. By year's end, nearly 200 stores and more than 300 retail employees had been trained. Enzymedica President Tom Bohager and technical advisors traveled the U.S., conducting in-person, day-long training sessions on how to recommend and sell all products in the enzyme category (not just Enzymedica's). The company provided materials including an educational DVD for use in stores and a third-party research website (www.enzymeresearchgroup.net).
Bergstrom Nutrition for making significant financial investments in a third-party, product-neutral web portal for MSM (msmguide.com). Bergstrom, which owns the OptiMSM brand, found consumers mostly research supplements on line before making a purchase. Written by a team of scientific advisors and reviewed by supplement industry attorneys, the website provides impartial education on MSM, inviting submissions by researchers and academics. Bergstrom continues its investment with a major, integrated public information campaign to promote the site.
NOW Foods for launching NOW University, a free educational program for retailers that encourages those on the front lines of consumer contact to learn as much as they can about today's most important health concerns and dietary supplements. Upon completion of the online course, retailers are awarded a certificate. NOW U is based on the recently published book, "7-Syndrome Healing: Supplement Essentials for the Mind and Body," by Marcia Zimmerman and Jayson Kroner.
Innovative Technology
BI Nutraceuticals for Protexx, a sanitization technology based on super-heated dry steam. Botanical sterilization using ethylene oxide (ETO) and irradiation are both associated with health issues. ETO has been identified as a carcinogenic and reproductive toxin. U.S. supplement manufacturers using irradiation must abide by strict labeling laws. Both ETO and irradiation are banned in Europe. The company said it viewed Protexx steam as the optimum choice thanks to its positive effect in microbe reduction and in allowing supplement makers to work with unadulterated herbal powders that are not irradiated or chemically treated.
NutraLease Ltd. for a microemulsion technology to produce new vehicles for liquid nano-encapsulation of nutritional ingredients and essential oils. NutraLease's nano-sized vehicles allow the incorporation of insoluble active ingredients into functional food formulations for improved bio-availability, according to the company. Nano-sized vehicles are produced as liquid concentrates. Consisting only of GRAS ingredients, they are easily formed, thermodynamically stable, of low-viscosity and transparent. As a result, water insoluble ingredients and flavor oils can be incorporated into clear beverages. Active ingredients that have been incorporated in the vehicles include CoQ10, lycopene, beta-carotene, lutein, vitamin A,D,E and K, citrus oils, flavor compounds, and phytosterols.
Blue Pacific for ingredient IP technologies that include a Natural Bitter Blocking Flavor system that minimizes off-taste and bitter/astringent rheology in high vitamin fortified nutritional bars, high protein drinks and soymilk products. The company also recently introduced its Taste Nanology process to deliver higher nutritional benefits as well as lower fat than traditional food technologies. Blue Pacific said it applies nano-type processing techniques that combine particle dynamics (nano type, high shearing of ingredients) with proprietary emulsion, flavor and B-Block technologies. For the dietary supplement industry, the company has expanded this process to include Functional Active Nanology, designed to improve bioavailablity of ingredients when added into foods or supplements.
Investment in the Future
Supplement manufacturer Jarrow Industries Inc. (Santa Fe Springs, Calif.) for investing more than $2 million in an additional 31,000 square feet for its multiple packaging lines to address the growing needs of its private label and contract packaging customers. Jarrow's facility will be expanded to 76,000 square feet to provide additional services for bottle packaging, automated powder packaging, pouch packaging and blister card and box packaging. Jarrow also achieved NSF cGMP certification for its contract services facility in 2006 and is embarking on achieving organic manufacturing and ISO 9000 registrations in 2007.
Standard Process Inc. for adding 100,000 square feet to its existing 160,000-square-foot manufacturing facility and plans to hire an additional 40-50 full-time employees. Standard Process, a manufacturer of whole food supplements distributed through health care professionals, grew sales 20% in 2006 and shipped a record 8.7 million bottles. The biggest increase was in purification products, which grew 46%, and heart health products. Standard Process attributed growth to patients' demand for guidance from health care professionals, product quality, and paying more attention to health care professionals' needs, including a comprehensive education program. Now in its 77th year, Standard Process remains private and family owned.
TSI Health Sciences for investment in high quality facilities in China. In 1996 TSI launched as a sourcing company and has evolved into a full-scale manufacturer with headquarters in Missoula, Montana and Shanghai, China. TSI's increased commitment to China includes a 60-acre progressive industrial park in Jiangyin with synthesis, hydrogenation and enzymatic extraction facilities, 35,000 square feet of Q/A and Q/C labs and international cGMP accreditation. TSI also has two majority-owned JV facilities in China: TSI-Xuzhou Natural Products Co. Ltd. for large-scale botanical extraction; and TSI-Yangzhou Natural Products Co., Ltd. for glucosamine manufacturing.
Embria Health Sciences, a raw material manufacturer of science-backed natural ingredients, made a substantial increase in staff and broke ground on its $10-million, 36,000-square-foot headquarters and manufacturing facility in Ankeny, Iowa. Embria introduced its flagship ingredient EpiCor, an all-natural high-metabolite immunogen ingredient designed to support immune health in 2006.
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