By Edvard Bruu and Wilma Tillqvist (Stockholm School of Economics), Aman Singla, Akhil Anand Vajjhala and Siddharth Tripurani (New York University)
Overview of the deal
Acquirer: Société des Produits Nestlé S.A (A subsidiary of Nestlé S.A.)
Target: Aimmune Therapeutics
Implied Equity Value: $2.6 B
Closed date: August 31st, 2020
Target advisor: J.P. Morgan Securities LLC and Lazard
Nestlé Health Science (NHS) had already accumulated an investment value of $473 million by mid-2020. ($145 M was the initial investment) Having already had their eye on the company, the FDA’s approval of Aimmune Therapeutics’s treatment for peanut allergic reactions, Palforzia, was the tipping point for Nestlé to move on the acquisition. Nestlé’s existing portfolio already boasts cores in baby care, pets, coffee and nutrition. The addition of Palforzia will increase the target consumer base on a global scale as food allergies increasingly limit options in the market for the average consumer.
The equity value comes as a 174% premium was observed on Aimmune’s closing price dated August 28th, 2020. Equity analysts were quick to update their Nestlé stock projections to higher bull and worst-case scenarios.
“This transaction brings together Nestlé’s nutritional science leadership with one of the most innovative companies in food allergy treatment,” - Greg Behar, CEO Nestlé Health Science.
Company Details: Société des Produits Nestlé S.A
Nestlé S.A. has been the world’s largest food and drink conglomerate corporation by revenue since 2014. They have over 9,000 native employees with 1,960 companies and their additional employees in the business family. Nestlé prioritizes the future with sustainable action plans with respect to waste, water and allergies as made relevant by this acquisition.
Founded in 1866, headquartered in Vevey, Switzerland
CEO: Ulf Mark Schneider
Number of employees: 352,000
Market Cap: $344.6 Bn as of 05/09/2020
EV: $373 Bn
LTM Revenue: $82.6 B
LTM EBITDA: $40.6 B
LTM EV: x4.01
Company Details: Aimmune Therapeutics
Aimmune Therapeutics is a biopharmaceutical company developing and bringing new treatments to people with potentially life-threatening food allergies. They recently received FDA approval for its one-of-a-kind drug, Palforzia, which can help treat peanut allergies.
Founded in 2011, headquartered in Brisbane, California
CEO: Jayson Dallas
Number of employees: 376
Market Cap: $ 2.24 Bn as of 09/09/2020
EV: $2.07 Bn
LTM EV/Revenue: x3.59
In the short-term, no financial gain can be expected for Nestlé’s shareholders, seeing as Aimmune is far from profitable at the moment. Throughout the full year of 2019, the company had a negative result of a quarter of a billion dollars, mainly driven by their extensive research and development costs. However, Nestlé estimates that Aimmune can contribute to its revenue growth already within the coming year. This prognosis is justified by the recent FDA-approval of Aimmune’s peanut allergy treatment for children, which is expected to stabilize the company’s future cash flows.
Having an international food conglomerate take on full ownership of the company, not only provides Aimmune with the needed cash reserves to finalize projects in their pipeline. It also relieves the company of any pressure to rush their products to market, and can instead focus on creating the innovative products that have a more long-term focus, and that made Nestlé acquire them in the first place.
As with any acquisition, the question of possible synergies between the two companies is highly relevant to assess the transaction, though it can be concluded that they are quite limited in this case. Since Aimmune currently only develops prescription drugs, Nestlé is not able to leverage its extensive distribution and retailing network to drive the products’ sales growth. Hence it can be assumed that the deal is driven by more long-term implications for Nestlé, rather than the short term synergies.
As a result of slower growth in packaged food sales due to changing consumer trends, Nestlé has made strategic moves to position themselves as a “Nutrition, Health and Wellness” company. NHS plays a key role in this repositioning and the business unit attempts to broaden their product line-up so that it includes solutions ranging from diagnostics to treatment of food allergies. The key rationale behind the acquisition of Aimmune can be seen in this light since it broadens NHS’s food allergy portfolio, with the drug Palforzia being at the core of the acquisition. Up to 240 million people worldwide suffer from food allergies and since allergies often are life-long, the industry offers potential for long-term sales.
“Together we will be able to offer a wide range of solutions that can transform the lives of people suffering from food allergies around the world.”
- Greg Behar, CEO, Nestlé Health Science
From a financial perspective, the deal is expected to be accretive to cash earnings 2022/2023. There is also a potential upside from margin improvement due to cost savings (e.g. from lower manufacturing costs) and an improving product mix. However, as mentioned by Nestlé’s CFO, Francois-Xavier Roger, margin improvement resulting from the group’s recent and potential future acquisitions will not all affect the bottom line as it also will be used to support future growth.
Risks and Uncertainties
The primary reason for this merger is Aimmune Therapeutics’ recent FDA approved Palforzia peanut allergy drug. The biggest uncertainty in this merger is the success of this Palforzia drug. This drug is merely the first FDA-approved drug, but it has multiple competitors in the market well on their way at getting approved by the FDA as well. Antera Therapeutics’ is a major competitor to Aimmune and its drug, Aralyte, is believed to be more precise, safer, and more competitive. Another company, Alrgn Bio is attempting to remove allergenic proteins from peanuts entirely, which could completely eliminate the market base for Aimmune Therapeutics, and more importantly NHS. Aimmune is largely dependent on the success of Palforzia and if it doesn’t go through in the way that it was intended, NSA could take a huge hit. Palforzia is also developed by third-party companies and not in-house, which could also further the risk of the development of this drug. Furthermore, Aimmune Therapeutics has nearly $134mn in debt, which could further the risk taken up by NSA and Nestlé shareholders. There is also an element of risk due to appreciation of the Swiss Franc in comparison to Nestlé’s major currencies – particularly USD.