Nestlé Supplement Brand Buying Spree Isn’t Done Yet

Even before it’s announcement to buy The Bountiful Company and Nuun, Nestle was quietly becoming one of most important players (if not the most important player) in the supplement industry. Let me explain…

In the last two weeks, Nestle agreed to buy a collection of brands from vitamin and mineral supplements (VMS) portfolio The Bountiful Company for $5.75 billion and hydration supplement brand Nuun for an undisclosed amount.

If The Bountiful Company name doesn’t ring a bell, it’s likely because they recently rebranded the portfolio in January 2021. For my OG VMS industry professionals, The Bountiful Company is better known as Nature’s Bounty or NBTY, which was founded in 1971 by Arthur Rudolph as a mail order/catalog-based company. The initial VMS brand focus has grown into a massive portfolio company from decades of mostly M&A activity. Brands in the portfolio company include; Nature’s Bounty, Pure Protein, Solgar, Osteo Bi-Flex, Puritan’s Pride, Dr.Organic, Sundown, Ester-C, and Met-Rx.

Over the last few decades, ownership has bounced around a bit from being a publicly-traded company to private equity firm The Carlyle Group taking it private before selling the majority to another private equity firm KKR. Moreover, the 50-year-old company was planning to IPO again this year under the ticker “BTFL” before Nestle jumped into the mix.

Though Bountiful Company owns more than a dozen brands, Nestle is not acquiring all of them, with its collection of sports and active nutrition brands (Pure Protein, Body Fortress and MET-Rx), as well as UK-based personal care brand, Dr.Organic, and the Canadian over-the-counter (OTC) business, VitaHealth OTC not being apart of the deal. The acquired brands had sales of $1.87 billion in the last year (ending March 2021), with an EBITDA margin of 18.3%. That means Nestle is paying 3.1 times the value of sales, and an EBITDA multiple of 16.8 times. That being said, with any horizontal “scale-type” M&A of this size, you also expect a deep level of margin accretive synergies to become a reality over the next several years that weren’t baked into the valuation.

Nuun (pronounced “noon”) began in 2004 as the first company to separate electrolyte replacement from carbohydrates. Its basic selling point has always been the same: You don’t need that much sugar in your sports drinks to rehydrate (knock on the market leader Gatorade). It was founded by Tim Moxey, a triathlete who developed the first Nuun tablets to help himself train and built the business off relationships with local store owners (still the top selling hydration product in bike, run, outdoor specialty and outdoor chain stores).

Moxey left the company in 2010 to found a Seattle-based cannabis startup in 2013, and sold his Nuun ownership to a group in 2015. Under current CEO Kevin Rutherford that joined in 2013, Nuun has expanded its product offerings from its sports hydration roots to include a broad range of effervescent tablets and powders containing additional minerals and vitamins for energy, relaxation and overall well-being.

Nuun is said to be profitable, with $40 million to $50 million in annual revenue and its products are sold in over 5,000 outlets in the U.S. and available in over 30 countries.

In recent years, CPG giants like Nestle have scrambled to add more health and wellness brands into their portfolios, as consumers spend more on these categories. The most obvious reasons given for acquiring these functional CPG brands surround how they usually have higher margins and growth rates…even during the external threats like recessions and pandemics. That isn’t incorrect, with sales of VMS products in the U.S. market up about 12% YoY (year ending April 24, 2021).

But, I believe there’s something even bigger at play if you dig a little deeper in the right places…

CEO Mark Schneider joined Nestle in 2016 straight from the healthcare industry. I believe his background is extremely important to note because it likely changed the long-term trajectory of Nestle. Mark Schneider knows more than the average CPG leader that we are a “sick society” and there’s a massive opportunity for Nestle to diversify away from slower-growing food and beverage products to become “a health and nutrition powerhouse.”

If you aren’t familiar, Nestle actually has a segment called Nestle Health Science that contains a number of Consumer Care and Medical Nutrition brands. In its latest earnings report, Nestle Health Science reported net sales of ~$1.1 billion, which was up 9.5% YoY organically and 21.6% YoY on a reported basis stemming mostly from M&A growth impacting comparables.

Nestle made three sizable M&A transactions in 2020 within this segment;

  1. Nutricosmetics brand Vital Proteins
  2. Digestive RX company Zenpep
  3. Biopharmaceutical business Aimmune Therapeutics Inc.

Nestle also has been additional sizable M&A moves in the segment prior to 2020, acquiring Canadian vitamin maker Atrium Innovations Inc. (owns brands like Garden of Life) for $2.3 billion.

Despite all the organic sales growth and M&A activity, the Nestle Health Science segment still only accounts for about 4% of the company’s overall sales. That being said, the world’s largest food company is embracing healthier living, not just in terms of today’s standards, but also by positioning itself for the future…

Today, Nestle is obviously well-positioned for the current “off the rack” product consumption. Nestle is actively evolving its portfolio (largest food company and one of the largest beverage companies in the world) to meet today’s market needs. Additionally, after The Bountiful Company M&A transaction closes, Nestle will be the largest VMS company in the world. Moreover, Nestle has a compelling portfolio of health science companies. This sets them up perfectly throughout the next decade of near-term growth, but Nestle knows the market is shifting fast into something more dynamic.

The future of Nestle becoming a health and nutrition powerhouse embraces the increased commercialization demand focused around personalization. The current state of personalized nutrition seems to be focused on the healthy/active consumer cohorts looking to optimize their high performance lifestyle. While that’s a viable long-term market and most fruitful current market because of concentration of first adopters, I think a much bigger play is positioning personalized nutrition technology within mainstream “sick” consumers looking to improve their daily health.

Personalized nutrition will eventually become ubiquitous and just be the expectation of nutrition. While there’s many personalized nutrition startups that are more focused on getting to n=1 through a regular battery of tests from blood panels to DNA data, Nestle understands how “going wide” over “deep” right now interacts with customer acquisition and how that data can be utilized within large-scale shifts of future commercialization. Fact is, Nestle has the upper-hand right now on a larger portion of the personalization equation that will define the CPG industry of the future and this should scare its competitors.

Personalization (VMS) = Nestle owns Persona, the subscription-based personalized vitamin business, which more than doubled its sales YoY in 21Q1. Nestle’s aggressive M&A activity in the VMS space will also allow them to gain pricing power and additional market share that can be beneficial in this shift towards personalization.

Personalization (Food and Beverage) = Nestle also acquired Freshly, healthy meals delivery company which can be prepared in a few minutes in your microwave or oven, last year for $1.5 billion. While not within the Nestle Health Science segment, I believe it will be leveraged in its personalization equation because of its ease and convenience.

Personalization (Medicine) = last year’s Zenpep and Aimmune Therapeutics Inc. transactions shows its hand a bit to confirm my Nestle strategic game plan prediction. The easiest way to introduce Nestle’s personalization equation would be to focus on health conditions that can improved by nutrition-based methods. You get results within the fringes that have sizable total addressable markets and then leverage that story into more general health areas.

Final Thoughts

The Nestle and Bountiful Company deal has huge short- and long-term implications for the entire supplement (…the whole CPG) industry. While “scraps” will always fall from the table of giants to feed a group of peasants below, an increasingly competitive market across all categories that’s focused on “off the rack” products will force many legacy and emerging brands to adapt or die.

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Functional CPG Business Strategist | Entrepreneurial Ideation to Commercialization Expert | Early-Stage Investor | Futurist | Sports Stat Nerd |