M&A numbers down, but value of deals is up, investment group says

M&A deals declined from 176 in 2011 to 155 in 2012, a 12% decline, while financings hit 92, a 50% increase from the previous year. It’s indicative of a structural cycle within the industry, said Grant Ferrier, founder and CEO of NCN, a company that matches early-stage growth companies in the sector with investors. “There are always a couple of issues with M&A. One is how many fish are there in the sea. How many qualified buyers are there at each level of the chain? Part of the reason of the numbers are down is there are there are less fish of the really big scale,” Ferrier told NutraIngredients-USA. “For the big strategic buyer, a top 100 food company, a top 50 pharma company, or one of the 10 big ingredient companies, the BASFs and DSMs of the world, they probably aren’t going to buy anything under $50 million. There are the transaction costs and the smaller deals don’t really move the needle for shareholder value,” he said. Bidding war was indicative Ferrier said the paucity of fruit ripe for the picking in that price range could be seen in one of last year’s big deals. “You saw that in the supplement deal where Bayer bid $1.2 billion for Schiff and Reckitt Bensicker Group swept in and bought if for another $200 million. That was surprising to a lot of people but it was indicative that there are not enough available deals of that scale globally in the supplements industry,” he said. For the coming year, Ferrier believes that M&A activity will likely be flat as far as the number of overall deals are concerned, but that the overall value of the transactions will continue to rise. “The pipeline (of companies ripe for takeover) is being filled, but probably not as fast as the appetite out there for big, scalable deals. That means it’s probably good for valuation,” Ferrier said. Other ways for the big boys to play This relative dearth of scalable deals means big investors are looking for other methods to put their money to work in the sector in ways that aren’t as expensive and time-consuming as an actual merger would be. “How do they play at a more incremental level, at a lower level? Do they venture, do they have venturing entities within their own companies, do they put money into private equity funds? I think they are looking at all those levels to stay in touch with where the innovative edge of the industry,” Ferrier said. “That’s good for (NCN) because they pay more attention to our investor meetings and deal flow.” On the financing side, Ferrier said that with capital being concentrated in fewer hands, it was becoming more difficult for a company that was at, say, $500,000 in annual sales to find to pry loose a $3 million or $4 million investment that would enable it to break through to $8 million in sales. Big investors want big deals, Ferrier said, and smaller companies are finding ways around this roadblock. “Smaller companies are finding lots of different ways to raise money. It may smaller funds, family funds, it may be individual investors, it may even be crowd source type of instruments that have sprung up,” Ferrier said. “There is more interest around the periphery of the industry in doing small deals, but not so much from the big strategic investors.” Tech solutions draw interest One trend that stood out in the financing segment was the uptick in interest in enabling technologies, mainly IT solutions that help the industry connect better with consumers or that help corporate wellness programs better characterize and track their members, Ferrier said . One example was the digital platform Farmigo, which provides a personalized online marketplace for locally harvested foods. Sherbrooke Capital, a firm that participates in NCN events, was among investors providing Farmigo with an $8 million financing during the year. Among NCN’s list of the top 15 transactions in health and wellness sector last here were Campbell Soup’s $1.6 billionb acquisition of Bolthouse Farms, Reckitt’s $1.4 billion acquisition of Schiff Nutrition and the $500 million and $900 million acquisitions of leading fish oil suppliers Ocean Nutrition and Pronova BioPharma by DSM and BASF respectively.

M&A numbers down, but value of deals is up, investment group says

Nutrition Capital Network noted a record 247 deals in the health and wellness sector in 2012. Within that number, the group noted a decline in the number of M&A deals from the previous year, but an increase in financings.

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