Natural Products Insider

JUL-AUG 2019

INSIDER is the leading information source for marketers, manufacturers and formulators of dietary supplements, healthy foods and cosmeceuticals. Since 1997, INSIDER has been serving the needs of the global nutrition industry.

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40 INSIDER July /August 2019 It's no secret the health and nutrition industry is thriving. In its 2019 Supplement Business Report, Nutrition Business Journal (NBJ) valued the 2018 natural and organic product industry at US$219 billion, with 21%—or $46 billion—represented by supplements. And annual events including SupplySide West and Natural Products Expo West are continually increasing in size and scope, setting new records from number of exhibitors and attendees to amount of dedicated exhibit space. For a closer look at some of the business strategy behind the growth, INSIDER sat down with two fi nancial gurus to discuss merger and acquisition (M&A) activity in the supplement sector the last few years. Bakley Smith, CFA, is vice president at Green Circle Capital Advisors, a boutique investment bank providing advisory services in raising capital and M&As. The fi rm's focus is specifi c to natural products and tech-enabled services for health and wellness. Grant Ferrier is co- founder and managing director of Nutrition Capital Network (NCN), an organization that connects investors with high-potential growth companies in the nutrition and health and wellness industry. INSIDER: What's going on with M&A activity? Smith: The basic M&A situation facing the supplement industry is similar to that facing many segments of the broader economy. Ten years of modest but consistent economic expansion has combined with a historically massive amount of liquidity, provided by central banks around the world to create a bullish M&A environment. This means both private equity and companies in the supplement industry have excess cash and access to additional cash that they are using to do deals. This is true both in the U.S. and in other major economies. The supplement industry has specifi c tailwinds that are supportive of M&A beyond the general environment. The industry has positive growth drivers and is fairly fragmented. There have been several large deals in the last two years, and there have been smaller deals as well. That said, it is not a "hotbed" of M&A activity with major deals every quarter. We have a view that we are in the "middle innings" and expect more activity in the future as buyers continue to take notice of the positive growth drivers in the space and opportunity to get better returns on lower-priced assets than can be found in adjacent industries like food. INSIDER: When looking at M&A supplements transactions from 2014 to 2018, the drop in 2018 appears signifi cant not only within supplements, but also compared to other health and wellness transactions. Is that a concern? Ferrier: While the data do indicate, and I do acknowledge, that transactions in the supplement industry decreased in 2018, I would view it more as a statistical anomaly than as a major trend. Given that annual numbers of M&A transactions are between 10 and 20 in dietary supplements, fl uctuations in percentage are expected given the relatively small numbers. Also, signifi cantly high valuations in 2017 M&As | The basic M&A situation facing the supplement industry is similar to that facing many segments of the broader economy. | Private equity has a growing influence in the supplement industry, as it has across many sectors of the economy. | In recent years, some of the world's biggest CPG companies (such as Unilever and Nestlé) are betting on supplements. Gauging Supplement M&A Activity by Karen Butler INSIDER's Take Nutrition, Health and Wellness Industry Transactions: Key Segments in 2018 2014 2015 2016 2017 2018 2017 2018 M&A: Natural & Organic, Functional Food 53 100 103 138 136 34% -1% M&A: Retail & Distribution 11 10 26 34 22 31% -35% M&A: Ingredients 22 22 29 43 28 48% -35% M&A: Supplements 22 10 17 21 10 24% -52% Source: Nutrition Capital Network Transaction Database

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