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Private equity deal shows interest in contract manufacturing remains high

By Hank Schultz

- Last updated on GMT

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Getty Images
Utah-based contract manufacturer Capstone Nutrition has been acquired by a private equity firm, showing there is still room for growth in the contract manufacturing sphere despite reports of overcapacity.

On Tuesday, Brightstar Capital Partners announced the acquisition.  Brightstar bills itself as a private investment firm that partners with closely-held middle market companies. The acquisition, whose details were not released, was reportedly accomplished in partnership with the members of its senior leadership team.

Wide customer base

Capstone in its current guise was formed in 2014 via the union of two companies​ called Integrity Nutraceuticals of Spring Hill, TN and Cornerstone Research and Development in Ogden, UT.  The combined company was based in Ogden with a reported 300,000 square feet of manufacturing capacity.

The company produces a wide range of vitamins, minerals, nutrition, anti-aging, and general wellness products. Capstone says its customer base includes global marketers, consumer brands, health food and specialty retail outlets, as well as online and mass-market retailers.

"Capstone is a top-tier platform in a fragmented and rapidly growing segment of the health and wellness market,"​ said Gary Hokkanen, a partner at Brightstar and incoming chairman of Capstone. "The company has a 30-year history of making health-oriented products for a variety of customers in the United States and internationally.”

C​ontract manufacturing opportunity

Greg Horn, a principal in the firm Specialty Nutrition Consulting, helped put together the deal that formed the current version of Capstone.  He said the transaction announced yesterday shows there is still opportunity in the sector.

“The near term future of the contract manufacturing segment of the industry is bright primarily because when entrepreneurs decide to enter the category they typically don’t want to manufacture their own products,”​ Horn told NutraIngredients-USA.

“And that is true of the big companies, too, like Clorox and Procter & Gamble,”​ he added.

Horn said that the contract manufacturing sphere has developed some overcapacity in recent years.  But he said there is still plenty of demand for companies that can demonstrate the highest levels of quality.

“Having high quality plays a big role and Capstone is at that end of the industry,”​ he said.

MusclePharm lawsuit

In between the 2014 deal and yesterday’s announcement, Capstone weathered a costly falling out with sports nutrition player MusclePharm, once one of the company’s major customers.  MusclePharm’s sales, a therefore its contract manufacturing needs, had grown rapidly in the 2012-2015 time frame, with the company once reporting more than $166 million in annual revenue. But the company never achieved reliable profitability. Capstone sued for breach of contract, alleging that MusclePharm had “essentially used Capstone as its bank.” The suit was settled in late 2016 for $11 million​.

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