With customers embracing healthy lifestyles and conglomerates scrambling to keep pace with fast-changing food options, international giant Nestlé SA is shelling out $2.3-billion (U.S.) to obtain Montreal’s Atrium Innovations Inc., a privately owned firm that specializes in organic and natural supplements.
Once publicly traded, Atrium was taken private in 2014 for $751-million (Canadian) by European private equity firm Permira, which retained the Caisse de dépôt et placement du Québec and Fonds de solidarité FTQ as minority partners. Close to four decades later, Atrium has been sold for at least three times as much, rewarding a new management team for its turnaround efforts. The sale price also speaks to heritage companies’ incredible appetite for new, high-margin “lifestyle” brands.
When Permira first obtained Atrium, its stock price had sagged after earnings growth plateaued from formerly scorching levels and the company wrestled with a changing regulatory environment in Europe. In Germany, one of its best-selling anti inflammatory products, Wobenzym, a pure Aspirin alternative, needed to be relabelled and reformulated, which hurt sales.
Atrium established a strategic review in the second half of 2012, and, over the course of 12 weeks, four distinct bidders — three private-equity companies and one unnamed strategic player, possibly a conglomerate — made offers to purchase the firm.
Permira was finally successful, paying $24 a share.
Under private ownership, a new management team was set up at Atrium, headed by chief executive officer Peter Luther, who had formerly served as Johnson amp; Johnson’s customer health-care head. Its immediate focus was to squeeze improved earnings from Atrium’s best-known brands: Garden of Life, making non-genetically altered, certified USDA Organic oils and vitamins; and Pure Encapsulations, which generates hypoallergenic supplements without any artificial sweeteners.
The business also launched a new brand of probiotics and expanded its international reach with an entry into China.
Nestlé, meanwhile, has been under pressure from an activist investor, and rival conglomerates have been occupying up-and-coming natural-food businesses. Campbell Soup Co. acquired Plum Organics in 2013, while Hormel Foods Corp. obtained Applegate Farms in 2015.
Parent companies of ancient manufacturers are “getting squeezed on cost everywhere in their companies, except in organic food, so they are going out and paying large multiples” for newer organic and lifestyle players, ” said Kenric Tyghe, a customer and retail analyst at Raymond James. When Atrium was taken private in 2014, its purchase price amounted to 1.5 times earnings over the past twelve months; Nestle is paying 3.3 times yearly sales.
Such multiples are arguably justified, however. Natural foods are “among the very few areas they have some real pricing power,” Mr. Tyghe added, with gross margins on nutritional supplements frequently hovering around 50 percent.
Because the buy price is so wealthy, Quebec institutional investors stand to make a tidy profit from the deal. Fonds de solidarité FTQ first spent in Atrium in 2000, and included through the years. The labor fund has plowed a total of about $60-million worth of equity to the business, and has also provided loans, ” said spokesman Patrick McQuilken. The fund should earn a net return of approximately $240-million (U.S.) on its own 12.5-per-cent bet, but the Fonds doesn’t disclose returns on its precise investments.
Caisse de dépôt et placement du Québec rolled over its 12.5-per-cent equity stake in Atrium with the Fonds from the 2014 private-equity buyout. A spokesman for the pension-fund manager declined to confirm the return it will make on its investment.
Atrium started in 1999 as a subsidiary of AEterna Laboratories Inc., now called AEterna Zentaris Inc., and has been completely spun off in 2006.
Courtesy: The Globe And Mail