Nestlé, the world’s biggest food group, is spending $2.3bn buying Atrium Innovations, a Canadian nutritional products company, from private equity group Permira as it seeks to pep up its portfolio of consumer healthcare businesses. The cash acquisition, announced on Tuesday, is the boldest move into consumer healthcare yet by Mark Schneider, who became Nestlé chief executive at the start of the year.
Atrium, best known for its Garden of Life natural supplements, is expected to report sales of almost $700m this year. Nestlé said Atrium, which was founded in 1999 and employs 1,400 people, would become part of its health science unit but continue to be managed by its existing management team, led by Peter Luther, chief executive. Greg Behar, chief executive of Nestlé health science, said the deal would extend the Swiss group’s product range with probiotics, plant-based protein nutrition, meal replacements and multivitamins, which would enable “consumers to address their health and wellness goals”. Mr Schneider has identified consumer healthcare as a growth opportunity for Nestlé, which, like rivals, has seen a slowdown in organic sales growth in recent years as a result of shifts in consumer tastes and weak global economic growth.
In June, US activist investor Daniel Loeb’s Third Point hedge fund revealed a 1.25 per cent stake in Nestlé, with a value of $3.5bn. Mr Loeb declined to comment on the Atrium purchase. Mr Behar said Atrium had “a very attractive financial profile” and would not be fully integrated so as to preserve its culture and brand image. He added that Nestlé would “continue to look for growth opportunities and things that make sense”. Since taking over at Nestlé, Mr Schneider has set the group’s first profit margin targets and announced a SFr20bn share buyback programme.
Like Paul Polman, his counterpart at Unilever, Mr Schneider has focused on a series of bolt-on deals, including a majority stake in California-based Blue Bottle, a chain of artisan coffee cafés and roasteries. However, Mr Schneider also made clear that he was in the market for consumer healthcare brands. He told investors at an annual conference in September that the sector had “promising trends” because of an increased interest in self-medication, strapped state healthcare budgets and the determination of baby boomers to age healthily.
Recommended Nestlé considers fate of past deals before striking again Nestlé unveils reorganisation of infant nutrition business Consumer goods groups are no bargain buy But the Nestlé boss was forced to admit that an earlier foray into consumer healthcare — a 2014 deal to take full control of Galderma, a Swiss dermatology group — had gone wrong. Nestlé’s skin health unit had acted as significant drag on sales and profitability, he told investors, forcing a restructuring. Nestlé is considered a potential buyer for the healthcare assets of German drugmaker Merck and those of Pfizer.
Both pharmaceutical companies are looking to sell off those businesses which are also of interest to Reckitt Benckiser, the UK group whose chief executive, Rakesh Kapoor, has repeatedly talked about the attractions of driving consolidation in a fragmented sector. The $107bn over-the-counter market, which comprises a wide range of sectors from vitamins and dietary supplements to painkillers and antacids, has been growing at a compound annual rate of 5 per cent for the past five years globally, according to Euromonitor. For Permira, the sale of Atrium returned investors 4.3 times their money, a person familiar with the deal said. Acquired in 2012, the private equity group focused on the fast-growing brands, including Garden of Life and Pure, and pushed sales online and to new geographies. In the case of Pure, it increased its sales outside the US from a “negligible” percentage to represent 30 per cent of its international sales to countries including Austria and Germany.
December 5, 2017