Nutritional Outlook

Nutritional Outlook, December 2016

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■ NUTRITIONAL OUTLOOK 48 December 2016 business Hungry for Healthy Strong investment from China and private equity drove 2016's health & wellness M&As. By KimBerly J. DecKer T he health & wellness (H&W) arena is a very attractive space for inves- tors, given all of the interest and in- novation surrounding today's nutritional, functional, and natural brands. As David T. Tibodeau, managing director, Wellvest Cap- ital (Boston), sees it, the healthy-living seg- ment is on track to top last year's transaction total by year's end, with 120 M&As already on the books through Q2 of 2016, compared to 154 in 2015's entirety. "Will we get as high as 2014's?" he asks. Te total transactions in 2014—168, to be exact— mark the peak of activity in the past half-de- cade. Whether 2016 can top that depends on how markets respond to recent events—like this year's U.S. presidential election. But no matter how investors react, "there are some strong valuations" buoying the health-and- wellness world, Tibodeau concludes. "So sellers have incentive to sell, and buyers that are able to pay premiums are able to buy." East Buys West A growing number of those buyers now hail from China. Tibodeau isn't alone in citing Chinese investors' "voracious" appetite for North American, European, and even Austra- lian H&W companies as an underlying motif of 2016's investment activity. Tat underlying motif somewhat upends a dominant theme of America's recent election—namely, that domestic manufacturers are drowning on a foodtide of foreign (read: Chinese) imports. But "while many lament the unfavorable China–U.S. trade defcit that the U.S. main- tains by mainly importing goods," the situation is reversed when it comes to dietary supplements, says Scott Steinford, executive director/president, CoQ10 Asso- ciation and Natural Algae Astaxanthin As- sociation (Salt Lake City, UT). China has a strong demand for American-made supple- ments. "Few products are as readily accepted by Chinese consumers as U.S.-made dietary supplements," Steinford says. "So the impe- tus to invest in these products is higher." Also encouraging Chinese investment? Te fact that the nation's emerging afuence and aging population bode well for the cat- egory's future success. Euromonitor reports that the Chinese dietary supplement market will increase 53% to $28.7 billion by 2021, Steinford notes; no wonder, then, that key players in 2016's M&As include Chinese in- vestors and American targets. The Private-Equity Stable But they're not alone. Another driving force behind this year's H&W investment activity is the willingness of private-equity groups to fatten up fedgling companies—and then unite them with eager buyers when they reach a respectable weight. As Tibodeau explains, "Te companies in our space are the innovation labs for many of the larger companies." Absent a critical mass of fnancial support for their explorations, private equity steps in as the de facto capital supplier, shepherding the startups until they're "a size that's really at- tractive to the strategics," he says. Some of those strategic investors are even forming investment vehicles of their own to nurture early-stage companies and "watch them more closely as they grow," Tibodeau adds. "Tat's how it's working today, and that's a much diferent model from it was 15 years ago." Ahead, Tibodeau and Steinford point to just a few examples of 2016 M&A deals that exemplify this changing model. Xiwang Buys Iovate An impressive $730 billion was the estimat- ed purchase price that Xiwang Foodstufs Company, Ltd., a Shandong Province–based leader in healthful edible oils, paid for Iovate Health Sciences International this past June. In purchasing Iovate, Xiwang got a nu- tritional-product company known for its brands MuscleTech, Six Star Pro Nutrition, and Hydroxycut. And what did Iovate get? To hear the company's executives tell it, Iovate got hastened immersion in China, where its MuscleTech brand is already a presence, not to mention a frmer grounding in a market that "we believe will deliver sig- nifcant growth in a reasonably short period of time," the executive team said in a com- pany statement. Even so, Iovate isn't pulling up states and heading East; the company pledges to main- tain its North American headquarters in Oakville, Canada, where all executives and senior leaders plus 330 current employees will stay. TiTov Nikolai/

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