M&A activity on pace to match 2012 totals, investment group says

“By most indicators the growth of the industry has between 5% and 10%, with some sub sectors higher and some lower. One way to look at it is that transactions should grow at about the same rate, which is what we have seen,” Grant Ferrier, co founder of NCN, told NutraIngredients-USA. While the pace of transactions holds steady, or may have cooled slightly from 2012 (but still far ahead of the dark days of 2009 through 2011), Ferrier said a key metric is the quality of the deals, and in that there is definite room for improvement, he said. “I don’t think there is any shortage of capital,” he said. “The enduring problem is that it is hard for small companies to get financing. “Beyond (getting money from) their friends and family and business associates, to ultimately get to that level where an investor is willing to write a seven figure check . . . that gap is still pretty yawning in our industry and it’s a challenge to get over it. So we’re seeing activity but it is not leaping ahead like the fundamentals of our industry might indicate,” he said. Pent up demand In 2012, merger and acquisition (M&A) and investment activity benefited from pent-up demand due to tough market conditions in prior years. Early numbers from the NCN Transaction Database for the first six months of 2013 indicate that the nutrition and health & wellness industry remains well ahead of 2009-2011 in terms of total transactions (acquisitions and financings combined), while average deal size is on par with 2012. “We continue to see strong interest from larger companies, and also from venture capital and private equity firms, in the nutrition and health & wellness space,” Ferrier said. “In particular, we have seen a shift to more financings for small and mid-size companies compared to acquisitions. This is likely due to a reduction in the number of larger target candidates available in our sector. Instead what we are seeing are investors funding the next generation of promising growth companies." Smaller companies attract smaller investors Ferrier said the health & wellness field is still a relatively new one, and unlike some more mature sectors (toothpaste manufacture, for example) there is a range of companies of varying sizes competing, from the small startups to companies nearing the $50 to $100 million annual sales sweet spot that makes them attractive takeover targets for the largest acquirers. Companies much smaller than that can be too expensive for big companies to consider buying when the more or less fixed transaction costs are figured in, Ferrier said. “The minimum amount they’ll spend on a deal with due diligence is probably at least $1 million,” he said. “That’s why venture groups are more willing to do smaller deals. But there is still a limited amount of smaller funds.” NCN matches early growth stage companies with investors via meetings in which companies can make their pitch about their products or technologies. Ferrier said what he’s observed in NCN’s dealflow through the first six months of 2013 is that by far the most active category for both M&A and financings is healthy food & beverages, with large corporations making strategic acquisitions to broaden their portfolios and increase their reach among more health conscious consumers. Natural & organic leads the way In financings, the lion's share of the action is in early-stage natural & organic food brands, followed by technology plays in wellness-related digital applications. NCN deals have been concentrated in foods, beverages, supplements and ingredinets. The fastest growing segment of deals is in the natural & organic. In 2013’s larger investments so far, private equity investors continued to feed their appetite for healthy eating establishments: TSG Consumer Partners invested in My Fit Foods and Brentwood Associates invested in Veggie Grill. Among the deals Ferrier mentioned in natural and organic are Danone's purchase of $60-million Happy Family, a producer of premium organic food for kids and a former NCN presenting company. Interest in the natural/organic baby food and children’s snack category was further demonstrated by Hain Celestial's purchase of $70-million U.K. company Ella's Kitchen, and Campbell's purchase of $40-million Plum Organics, also an NCN presenting company.

M&A activity on pace to match 2012 totals, investment group says

Investment and acquisition trends in the health & wellness industry in 2013 are on a pace to match 2012, according to a report by Nutrition Capital Network (NCN).

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