Top 10 nutrition industry deals of 2011

DSM buys Martek

In February, leading ingredient supplier Royal DSM purchased algal DHA producer Martek Biosciences for $1.1 billion, its biggest acquisition since buying Roche’s vitamin business in 2002. Among other products, Martek manufactures the blockbuster algae-based ingredient life’sDHA, a functional component dominant in the baby formula market, in functional foods and in vegetarian omega-3 supplements. The acquisition gives DSM a larger presence in the omega-3 market, especially as “vegetarian fish oil” starts to catch on. And for Martek—recently christened DSM’s Nutritional Lipids division—the deal offers the chance to better build out its functional food business and find its way into everything from margarine to yogurt to beverages to cereals.

DuPont swallows Danisco

After a January 10 announcement that chemicals giant DuPont had agreed to buy Denmark-based Danisco in a $6-plus billion deal, months of deliberation ensued before the $6.5 billion acquisition was finally sealed in May. The deal put DuPont in the driver’s seat for the probiotics market, where Danisco has long been a leader with its bulk strains and condition-specific lines. Danisco also boasts strength in enzymes and food ingredients, complementing DuPont’s biotech focus. According to DuPont, the acquisition is expected to be financed with about $3 billion in existing cash and the remainder in debt.

Pfizer passes Capsugel to KKR

Pharma giant Pfizer announced on April 4 the sale of its Capsugel division to private equity firm Kohlberg, Kravis and Roberts (KKR) for $2.4 billion in cash. Capsugel, which was acquired by Pfizer in 2000, posted about $750 million in revenue in 2010 and manufactured 180 billion hard capsules, making it the world leader in that segment. To put that into perspective, though, Pfizer as a whole now projects about $67 billion in revenue for 2011, following the divestiture of Capsugel.

Pfizer maintains a major stake in the supplement industry with the calcium product Caltrate and its Centrum multivitamin line, the main competitor to Bayer’s One A Day. Also, in December, the drug company announced its purchase of the consumer health division of Ferrosan, giving it a strong foothold in Europe’s probiotic and condition-specific supplement markets.

As for Capsugel—now free from the Pfizer umbrella—the deal could offer the capsule-maker the ability to be more aggressive in pursuing new products and new markets, with strong capital backing and support from KKR.

Henry’s and Sprouts reunite under Apollo

Phoenix-based Sprouts Farmers Market announced in April that it would merge with Henry’s Farmers Market, reuniting two chains founded by the same family. The combined company—now under the aegis of New York–based private equity firm Apollo Management—will have 98 stores with 7,000 employees and combined revenues of more than $1 billion. The merger marks the end of the Henry’s name (all stores will now operate under the Sprouts header), but it also marks the return of Henry’s founders, the Boney family. After starting the chain in 1943, the Boneys eventually sold Henry’s to Wild Oats in 1997. After Whole Foods purchased Wild Oats in 2007, it sold Henry’s to a subsidiary of Apollo. The Boneys founded Sprouts in 2002, and the chain has since grown to 54 stores.

Under the new deal, Apollo will gain a majority stake in Sprouts, while the Boney family will operate all stores.

Danone takes on India with Wockhardt acquisition

On August 3, Danone signed an agreement with Mumbai-based Wockhardt Group to acquire its nutrition business for $355 million. The deal puts Wockhardt’s Dexolac, Nusobee and Protinex brands into Danone’s hands, giving it a strong presence in the Indian infant formula and medical foods market. Wockhardt had originally offered Abbott Laboratories its nutrition business for $130 million in 2009 as part of a debt-restructuring program, but Wockhardt’s debtors balked and the deal fell through. A series of bungled deals, failed currency bets and stalled divestments spun the company deeper into the red, and Wockhardt now seems to be selling off assets in order to stall a death spiral.

Hain solidifies UK stake with Daniels Group

On October 25, Hain Celestial Group, the Melville, New York–based natural brand conglomerate behind Earth’s Best and Celestial Seasonings, announced its $230 million acquisition of U.K. food company The Daniels Group. A purveyor of natural, fresh and refrigerated foods, Daniels operates a host of brands, such as Covent Garden Soup, Farmhouse Fare and Johnson’s Juice. The deal falls in line with Hain’s stated goal of garnering 60 percent of revenue from the United States and 40 percent internationally, CEO Irwin Simon said in an October 25 conference call. Hain’s been in the U.K. for about 10 years, raking in about 55 million pounds a year, but has struggled to really grow that business in the last several years. This acquisition promises to give Hain a good European launching pad for its new and existing brands.

Ganeden sells supplement brands to Schiff

Schiff Nutrition International purchased Ganeden Biotech's probiotic supplement assets for $40 million in June, acquiring exclusive rights to GanedenBC30 in supplements and its over-the-counter brands, Sustenex and Digestive Advantage. BC30 is shelf-stable, temperature-resistant probiotic strain that shows great promise for the functional food market, and is already present in products from food service companies like Jamba Juice, Red Mango and Naked Pizza , as well as such diverse goods as pasta, chocolate, alternative sweeteners, and, of course, yogurt.

While Ganeden makes waves in food, Schiff looks to drive probiotics deeper into the mainstream market. Thus far the strategy has paid off. "Our fiscal 2012 second quarter sales grew 16% and, consistent with our strategy, were driven by our branded business including our newly acquired probiotics brands,” Schiff CEO Tarang Amin said in a December 15 earnings release.

Glanbia gets BSN

On January 19, Irish dairy and ingredients supplier Glanbia announced its $144 million acquisition of leading sports nutrition company Bio-Engineered Supplements and Nutrition (BSN). BSN markets a full line of sports supplements, and is best known for its N.O.-XPLODE pre-workout mixes and Syntha-6 protein products. The company brought in $160 million in revenue in 2010, ranking among the largest U.S. sports supplement manufacturers that year, according to Nutrition Business Journal estimates. The purchase price represents less than one-times BSN's revenue, making the deal a relative steal for Glanbia. Glanbia already maintains a large stake in the U.S. sports nutrition space, having acquired leading manufacturer Optimum Nutrition in 2008 for $315 million. The BSN purchase clearly strengthens Glanbia’s path to the consumer market. Glanbia is a leading global supplier of whey ingredients and, as Anthony Almada, CEO of sports nutrition manufacturer GENR8, notes, BSN is “the second-largest consumer of whey protein on the continent.” The largest is Optimum Nutrition.

Athena Wellness Brands assembled to buy Designer Whey

On April 26, Designer Protein announced its purchase of several operating assets of sports nutrition company NEXT Protein, including its popular Designer Whey brand of protein products. Three private equity firms—GarMark Partners, Northwood Ventures and Stockton Road Capital—financed the acquisition, creating a new company in the process—Athena Wellness Brands—of which Designer Protein is a subsidiary. Other brands acquired include Aria women’s protein products and a line of Designer Whey weight management mixes co-opting the trademarked Biggest Loser reality show from NBC. According to Cyrill Siewart, new CEO and chairman of Designer Protein, Designer Whey was attractive from an acquisition standpoint because it’s the premier protein powder on the market. “Designer Whey has a well-established market position, has very high quality—both from a protein perspective and an aesthetic point of view—and we feel that it has been under-marketed for a very long time,” Siewart told NBJ.

“Under-marketed” may seem like a misnomer considering Designer Whey’s longtime affiliation with The Biggest Loser. But Siewart sees weight management (the designation under which Biggest Loser products fall) as a category apart from sports nutrition (the heading for straight Designer Whey proteins) in the minds of retailers and consumers.

Targeted branding appears to be a focus for Designer Protein going forward. “Sports nutrition is in the process of segmenting,” said Siewart. “Be it male or female, hardcore or mainstream, pre-workout versus post-workout, physique versus performance, the category is splitting. The future of Designer Protein is to focus its brands on certain user populations.”

Another GNC IPO

After two abandoned IPOs by previous owners Apollo Management, and having failed to reach a merger agreement with potential Chinese buyer Bright Food, GNC went public for the third time on April 1, 2011, issuing 22.5 million shares to raise $360 million in equity. Net proceeds of nearly $240 million go towards reducing GNC's heavy load of $1.3 billion in long term debt, most of which was accrued during leveraged buyouts as control of the company constantly changed hands. Hopefully repaying some of the debt will free up resources, enabling the company to focus on their future rather than the aggressively financed deals of the past.