By: Christopher Shim (University of Cambridge), Jonathan Fuchs, Chiara Fulvi (London School of Economics), Varshika Prasanna, Aman Singla (New York University)
Overview of the deal
Acquirer: Nestlé Health Science S.A.
Target: Vital Proteins LLC
Implied Equity Value: Offer Price not disclosed
Total Transaction Size: USD 700m - 800m (Sources told Mergermarket)
Announced date: 10.07.2020
Target advisor: UBS
Nestlé’s nutritional science subsidiary, Nestlé Health Science (NHSc) has entered into an agreement to buy a majority stake in Vital Proteins, a leading U.S. producer of collagen-based supplements. Amidst the pandemic, Vital Proteins has seen demand for its products grow by more than 50% as consumers became more focused on their health. Nestle is hoping that the investment in the lifestyle brand will import a loyal customer base and products that complement its current palette of vitamins, minerals and supplements, hence presenting promising cross-selling opportunities. After the investment, Vital Proteins will continue to operate as a separate entity to maintain its high levels of innovation. Nestlé is planning to help Vital Proteins expand geographically and extend its product portfolio of 150 SKUs which are currently sold across 35,000 retailers in the U.S. and Europe.
“The collagen nutrition market is growing, and Vital Proteins has shown its strength by becoming a full lifestyle brand which will perfectly complement our other vitamin, mineral and supplement brands.” — Greg Behar, CEO of NHSc
Company Details: Nestlé Health Sciences
Founded in year, headquartered in City, State/Country
CEO: Ulf Mark Schneider
Number of employees: 291,000
Market Cap: $ 283B (as of 28/08/2020)
EV: $ 318B
LTM Revenue: $82.6B
LTM EBITDA: $40.6B
LTM EV/Revenue: x4.01
LTM EV/EBITDA: x18.22
Company Details: Vital Proteins
Founded in year, headquartered in City, State/Country
CEO: Kurt Seidensticker
Number of employees: 200-500
Market Cap: n/a
EV: n/a
Revenue FY19: 180m $
LTM EBITDA: n/a
LTM EV/Revenue: n/a
LTM EV/EBITDA: n/a
Short-term consequences
There are three short-term consequences (all beneficial) which emerge from Nestlé Health Science’s agreement to acquire a majority stake in Vital Proteins. First is that demand for Vital Proteins’ products has significantly increased (by more than 50%) as a result of the COVID-19 pandemic, which has made consumers more concerned about healthy living and therefore greater consumption of health products. As information on the release of a vaccine is unknown at least for the next few months, Nestlé Health Science will benefit from the strong demand in Vital Proteins’ products. Romitha Mally, Vice Chairman at UBS, explains that this situation has arisen due to the fact that “consumers are now even more focused on their health and well-being in the midst of this pandemic. The appetite for authentic wellness brands that are rooted in science should remain high.” Second is that this move will allow Nestlé Health Science to capably take Vital Proteins to the next level by better leveraging scale, capabilities, and resources. This is particularly in the context of a consumer market deeply interested in buying science-backed health products. This could be particularly said for the Millenial and Gen Z demographics.
Third is that Nestlé Health Science will have greater influence and deciding power over Vital Proteins’ 150 unique products, which are distributed across 35,000 retail doors in Europe and North America. This would do much to significantly increase Nestlé Health Science’s access to new consumer markets while simultaneously maintaining the aspects of Vital Proteins products which make it popular amongst its customers. Indeed, Nestlé Health Science’s vitamin, supplement, mineral and wellness brands (e.g. Garden of Life, Persona, Atrium Innovations) complement Vital Proteins’ products. Greg Behar, CEO of Nestlé Health Science remarked that this move is “an exciting opportunity for Nestlé Health Science to enter a growing area of nutrition with a successful brand…Vital Proteins has shown its strength by becoming a full lifestyle brand which will perfectly complement our other vitamin, mineral and supplement brands.” These three key factors make it clear that in regards to short term consequences, Nestlé Health Science’s acquisition of majority stake in Vital Proteins is a strong win-win for both parties.
Long-term Upsides
Nestlé Health Science acquiring a majority stake in Vital Proteins marks the first major acquisition in the collagen industry till date, indicating Nestlé’s belief in the future of collagen-based nutrition. Nestlé has been modifying its portfolio to include fast growing sectors, such as coffee and plant-based meat, while also expanding its involvement in the health and wellness business. Hence, Vital Proteins presents itself as the ideal target for Nestlé. According to Grand View Research, the global collagen market is projected to reach $6.6 billion by 2025 with a compounded annual growth rate of 6.5%. By acquiring a majority stake in Vital Proteins, Nestlé is in an ideal position to seize a large portion of that growth.Keeping Vital Proteins as a standalone business shows that Nestlé understands the strong brand that Vital Proteins has created for itself. Nestle’s synergy with Vital Proteins involves keeping Kurt Seidensticker as the CEO of Vital Proteins. This strategic decision will prove beneficial in the long run as Vital Proteins’ success can be attributed to Kurt’s leadership. Through this new partnership, Vital Proteins intends to continue to offer high quality collagen-based nutrition and utilize Nestlé’s resources to fulfill their mission to empower healthier lives.
This acquisition also suggests the scope for creative incorporation of collagen into Nestlé’s other products such as Nesquik chocolate milk. A report conducted by Nielson Corporation found that more consumers are looking for value-added beverages and foods that are lower in sugar. The data showed that the majority of Americans were not making healthy purchases as frequently as they wanted to, indicating that there is great scope for companies to manufacture products that come with health additives included. This acquisition could indicate the onset of production of tasty and healthy consumer packaged goods (CPG) and transform Vital Proteins into a bona fidewellness brand. Nestlé’s involvement will provide Vital Proteins with the resources it needs to explore geographic and product expansion and maintain the elements of the Vital Proteins brand. Vital Proteins has major operations in North America and Europe;with Nestlé’s support, it can develop to become a leading global collagen-based nutrition brand.
Risks and Uncertainties
In order to support the growth of its newly acquired collagen business, Nestle’ has announced expansion plans for Vital Proteins, both across geographies and product lines. Currently, Vital Proteins offers 150 unique products, sold in retail stores across Europe and North America. When expanding in new geographies, Vital Proteins faces the risk of running into consumers that are more price sensitive and less concerned with a healthy lifestyle than the Western market.
Vital Proteins’ current product line includes supplement, beverages, and food products, which stand out thanks to their high quality and sustainable sourcing. The main challenge the newly integrated business will face when expanding its product offering will be remaining true to Vital Proteins’ authentic brand. The decision to have Vital Proteins continue to run as an independent unit is testament to how highly its brand authenticity is valued by consumers. Maintaining such consumer confidence will be critical to the integrated business’ success. Further, product line expansion also presents the risk of cannibalising the market of other supplement brands held by Nestle’. In the long-run, Vital Proteins will have to strike the right balance between expanding its offering and remaining complimentary to other Nestle subsidiaries in the same industry.
“Joining NHSc allows us to take Vital Proteins to the next level by leveraging resources, scale and capabilities, and moving towards a future with an expanded offering of science-backed products” — Kurt Seidensticker, Founder and CEO of Vital Proteins