Nestlé finalized its deal with Bountiful’s owner private equity firm KKR to the tune of $5.75 billion. Nestlé purchased the supplement brands Nature’s Bounty, Solgar, Osteo Bi-Flex and Puritan’s Pride, as well as the company’s US private label business. Prior to the deal KKR had planned an initial public offering of stock in the company that was slated to raise about $6 billion.
Methodical nature of deal
Observers noted both the strategic nature of the acquisition and its price. Loren Israelsen, president of the United Natural Products Alliance, has been involved with and has observed dozens of such deals during his more than two decades in the business. While in some acquisitions it might feel as if a gold rush mentality had crept in — got to get in before all the good stuff’s gone — this transaction seemed quite the opposite.
“This looked very Swiss to me — very Nestlé — in that it was methodical and sensible. They bought only those brands that made sense for them in their market in the big box stores,” he said.
Nestlé identified a number of Bountiful’s assets that, “do not complement the Nestlé Health Science portfolio.” The portions of Bountiful excluded from the deal are the Pure Protein, Body Fortress, MET-Rx, and Dr.Organic as well as the Canadian over-the-counter (OTC) business.
“They are not competing against themselves and are not picking brands that are peripheral to their core market, which is the mainstream health and wellness shopper,” Israelsen added.
“These are familiar brands and they can pump a ton of money into building those into the premier brands,” he said.
Pandemic price bump?
Consultant Marc Brush, former editor of Nutrition Business Journal, said Nestlé has become one of the major players in the health and wellness space, which was growing faster that its core CPG businesses before the market distortions of the pandemic set in. Some dietary supplement industry forecasters believe that consumers’ commitment to personal health care and the products that go along with it will only increase in the future, once the pandemic-induced frenzy for immune health supplements abates.
“Nestlé’s commitment to supplements and nutrition is only getting deeper. The number of deals over the past few years, and the number of brands now inside that portfolio — Garden of Life, Vital Proteins, Persona, Pure Encapsulations — is formidable,” Brush said.
“My first thought about a deal of this size is price. Will acquisitions on the leeward side of COVID cost too much, or can acquirers effectively normalize out pandemic sales — I’ve heard investors in the industry call this a “COVID bump” — and pay a fair price? These Bountiful brands cost Nestlé a little over 3x sales, 18x EBITDA, which seems high for the legacy brands involved here, but not exorbitantly so,” he said.
As part of the IPO filing, KKR revealed that Bountiful had net sales of more than $2 billion in fiscal year 2020. The business, based in Ronkonkoma, NY and previously known as Nature’s Bounty, was founded in 1971. The company once own the Holland & Barrett retail arm in Europe, which it sold in 2017.
Battle for shelf space
Israelsen said other brands competing in Nestlé’s core markets will have to prepare themselves for a battle.
“Anyone who is in the same market with a dietary supplement brand, you’d better prepare yourself for a new level of challenge to maintain shelf space,” Israelsen said.
Israelsen noted that another facet of the deal was a private equity owner selling a major supplement brand back to a strategic investor in the space. It could be the harbinger of another flurry of M&A deals within the industry.
“This is not the last deal that Nestlé will do. And I think the appetite and money are there for further acquisitions by multiple players,” he said.
The Wall Street Journal reported that Nestlé ended 2020 with about $9.4 billion in cash (8.6 billion CHF) on hand, and a market value of almost $340 billion meaning the Swiss firm has ample financial wherewithal to fund the Bountiful deal along with other health and wellness acquisitions the company is reportedly contemplating.