Elevated Demand Continues for Health & Wellness Providers
Consumers are keenly focused on health and wellness and the sector is attracting large amounts of capital from public and private investors, many of whom have never invested in this segment previously.
Demand in the Health & Wellness industry has increased substantially amid the pandemic as consumers have placed an elevated focus on vitamins, minerals, and supplements to boost wellness and immunity. Notably, approximately 84% of U.S. adults are prioritizing healthy eating as much or more this year than in 2020, according to a recent consumer study conducted by Medifast (NYSE:MED).1
Leading public companies, capitalizing on heightened consumer interest, have experienced elevated sales, evidenced by Medifast recording a 90.9% increase in revenue in Q1 year-over-year (YOY), according to its earnings release.2 In addition, customer retention and distribution scale have been key focuses for industry players to capture additional market share and sales growth, with digital channels serving as a valuable means to drive revenue. Both Medifast and premier nutritional products provider Herbalife (NYSE:HLF) have increasingly emphasized investment in digital tools including mobile applications to create efficiencies and a more seamless customer experience. Through Q1, Herbalife has expanded its distributor base by 15% from the prior year, leveraging social media and messaging apps to engage and retain new customers, according to its earnings release.3
Heightened consumer demand has persisted into 2021, and merger and acquisition (M&A) volume has increased drastically. Through year-to-date (YTD) 2021, 58 deals were announced or completed, an increase of 71% year-over-year (YOY). Public companies have actively pursued acquisitions to bolster product offerings, enhance brand strength, and expand distribution channels, accounting for nearly 35% of YTD transactions. Category leaders have remained highly coveted targets for public players, with premium multiples being paid for providers with demonstrated brand strength and customer reach. Notably, Nestlé (SWX:NESN) and KKR (NYSE:KKR) entered an agreement to acquire the core brands of the Bountiful Company for an enterprise value of $5.8 billion, equivalent to 16.8x EBITDA (April 2021). In addition, Unilever (LSE:ULVR) has continued to add to its wellness and supplements portfolio, having agreed to acquire leading wellness supplements and lifestyle products provider Onnit for an undisclosed sum (April 2021). Onnit’s supplements include Alpha BRAIN®, which supports better memory, focus, and mental processing. It also offers functional nutrition, fitness essentials, and a digital content platform inclusive of fitness programs for its customer base. In addition, Onnit provides a subscription program, driving recurring revenue and repeat customers. Subscription programs have been a significant contributor to elevated industry sales throughout the pandemic, with nutraceutical brands experiencing a 27% increase in enrollments YOY in 2020, according to Nutritional Outlook.4
“Onnit is a leading brand in the fast-growing Nootropics segment. With its holistic health offering and digital-first model, Onnit perfectly complements our growing portfolio of innovative wellness and supplement brands that include OLLY, Equilibra, Liquid I.V., and SmartyPants Vitamins,” commented Peter ter Kulve, President of Home Care and Health & Wellbeing at Unilever in a press release.5
Private Equity Actively Targeting Health & Wellness Sector
Private equity buyers have drastically increased their presence in the sector in 2021, accounting for nearly 33% of transactions YTD, compared to 21% in 2020. Consolidation is expected to continue at a rapid pace, with sponsors leveraging historically low costs of capital and massive levels of dry powder. Health & wellness providers that possess brand strength and recognition, proprietary blends or product differentiation, and recurring revenue have attracted substantial buyer interest through 2021. In addition, brands with their own intellectual property often garner premium multiples from buyers seeking a robust sector portfolio. The current transaction environment presents a significant opportunity for business owners to capitalize on heightened valuations and complete a sale ahead of the likely unfavorable capital gains tax treatment under the Biden administration.
Sponsors have established platforms or completed add-ons to portfolio holding companies by acquiring attractive brands or capitalizing on favorable industry tailwinds by purchasing high-quality contract manufacturers. Private equity firms that have demonstrated a strong track record in the sector have continued to complete transactions to bolster their portfolios. Notably, Brand Holdings, formed by Kidd & Company and T-street Capital, announced its second acquisition in the Health & Wellness sector, purchasing Simple Botanics (March 2021, undisclosed), a leading provider of herbal tea and organic bars. The acquisition follows its purchase of Dr. Emil Nutrition in March 2020, a provider of health & wellness supplements and nutrition products (undisclosed).
DTC and ecommerce brands continue to be in strong demand. We expect M&A activity to continue to ramp for this sector, with Better-For-You brands, Health Supplements, Nutraceuticals and Sleep Wellness being particularly hot segments.
Brand Holding's two acquisitions also represent the heightened interest in the health & wellness focused direct-to-consumer (DTC) space among sponsors. Notably, providers with a subscription-based model allow private equity to have greater conviction behind justifying elevated multiples, evaluating sales in addition to EBITDA. “As we noted when we announced the formation of Brand Holdings in July 2020, the DTC e-commerce space has been growing substantially, and the consumer interest in products that promote a healthy lifestyle and self-care during the pandemic has risen even faster,” said Jeffrey R. Hennion, Chairman & CEO of Brand Holdings in a press release.6 In addition, Boyne Capital acquired leading DTC nutritional supplements provider Double Wood in January 2021 for an undisclosed sum. Double Wood plans to leverage Boyne's industry expertise and capital resources to expand distribution channels and grow its product portfolio.
Private equity deal activity is poised to continue at healthy levels, driven by vast amounts of capital, low interest rates, and an increased focus on building sector-specific expertise. M&A activity is expected to be rampant during the next six months, with private equity firms aggressively competing for high-quality businesses.
Cision, "Medifast-Sponsored Survey Reveals U.S. Adults' Healthy Eating Priorities for 2021," https://www.prnewswire.com/news-releases/medifast-sponsored-survey-reveals-us-adults-healthy-eating-priorities-for-2021-301254268.html, accessed May 10, 2021.
Medifast, "Medifast, Inc. Announces First Quarter 2021 Financial Results," https://ir.medifastinc.com/2021-05-04-Medifast,-Inc-Announces-First-Quarter-2021-Financial-Results, accessed May 8, 2021.
Herbalife, "Herbalife Ltd (Q1 2021 Earnings)," https://d1io3yog0oux5.cloudfront.net/_bc05892c7cd8b82a2a4de875afb272c0/herbalife/db/1118/10370/file/050421Herbal.pdf, accessed May 8, 2021.
Nutritional Outlook, ”Dietary supplement subscriptions: Driving growth long after COVID-19," https://www.nutritionaloutlook.com/view/dietary-supplement-subscriptions-driving-growth-long-after-covid-19, accessed May 8, 2021.
Unilever, "Unilever to acquire Onnit," https://www.unilever.com/news/press-releases/2021/unilever-to-acquire-onnit.html, accessed May 9, 2021.
Business Wire, "Brand Holdings, LLC Acquires Simple Botanics, the Second Acquisition in Executing Its Direct-to-Consumer E-Commerce Strategy," https://www.businesswire.com/news/home/20210330006062/en/Brand-Holdings-LLC-Acquires-Simple-Botanics-the-Second-Acquisition-in-Executing-Its-Direct-to-Consumer-E-Commerce-Strategy, accessed May 8, 2021.
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