When the bottom fell out of the market a year ago, it seemed like nearly every part of the global financial system came to a screeching halt (e.g., credit markets, mergers and acquisitions, private equity investments, etc.) Some markets have recovered nicely, but there is one portion of the financial world specific to the nutraceutical industry that warrants a closer look because it has come roaring back to life in a very short time: the IPO market.

For those who are unfamiliar with the term, initial public offerings, or IPOs, are the primary way companies publicly list their shares on the stock markets, by making a one-time share offering to the public markets. These shares then become the shares that are bought and sold on the exchanges. The motivation for launching an IPO usually comes from owners who want to cash out or a company that wants to use the public markets to raise funds.

The last time there was a major trend of nutraceutical IPOs coming to market was during the heyday of the Internet boom. After that, however, many famous names actually ended up going private again. This is significant because now the private equity firms that bought these companies are starting to prepare for IPOs to cash out their investments and bring the companies public again.

Mead Johnson arguably kicked off the wave of nutrition industry IPOs when it was spun off from BristolMyersSquib in January. Since then Vitacost.com and Vitamin Shoppe have both filed for IPOs. And one leading Chinese supplement company, Guilin Sanjin Pharmaceutical, had arguably the most successful IPO in nutrition industry history.

Vitacost.com is making a second attempt at an IPO, after its efforts in 2007 did not work out. This time the company has about $143 million in revenues and is looking to expand further by investing some of the proceeds in capital expenditures. If the deal is successfully placed, it would put a valuation on the company of $330 million, or 2.3 times revenues and 9.9 times is annualized earnings. This is remarkably high for nutraceutical retailers today, but it is important to keep in mind that the company has a solid, high-value customer base. On average, its customers spend between $72 and $77 per purchase, and they tend to place orders two to three times per year. Its growth is impressive as well. In 2006 it had 406,000 customers, but as of June 2009 its base had reached just under one million active customers.

For a discount retailer of supplements like Vitacost.com these are pretty good metrics, and the company's valuation reflects this. The average online retailer is valued at around 4-5 times earnings and only 0.3 times sales. Across the spectrum of valuations, this would put Vitacost.com up with some of the most successful online retailers.

Vitamin Shoppe also previously filed for an IPO in 2007, but withdrew it due to deteriorating market conditions. The company is more of a traditional brick-and-mortar retailer compared to Vitacost.com, but it does have an Internet presence as well. Retail store sales actually accounted for 87% of its $601 million in sales during 2008. The company is only planning on selling enough shares to raise $143.7 million, but as this issue went to press, the share price and number of shares being offered had not been determined, so the valuation had not been finalized.

While the Vitacost.com IPO is being used for both its shareholders to sell shares and for the company itself to use funds, it appears that the Vitamin Shoppe IPO is solely about its private equity owners cashing out their investment. Irving Place Capital Partners (formerly Bear Stearns Merchant Banking) acquired the company in 2002. And actually, seven years of ownership is quite a lengthy term for a private equity firm so it is not a surprising move.

Guilin Sanjin Pharmaceutical is a company that most Westerners may not have heard of, but its recent IPO represents a landmark deal for the industry. The company is a leading manufacturer of brand name supplements in Chinese-speaking markets. China banned IPOs due to the turmoil in the economy and its desire to stabilize the financial markets. As a result, the company probably benefited from this ban because it was the first IPO to reach the market in more than nine months. Demand was so high for its shares that it received offers for 584 times more shares than it was selling-yes, that number is correct. The company was valued at more than 30 times its earnings and raised $135 million from the IPO, which it is reinvesting in an effort to upgrade technology and launch new products. Incidentally, this values the company at more than $1.3 billion, which is not so bad for a supplement manufacturer most people in North America or Europe have never heard of. So how's the company doing today? Its shares have come down from their initial spike after the IPO, but they have still managed to grow 20% over their issuance price in July while the rest of the Shanghai stock market has collapsed.

It will be interesting to see whether or not these companies will lead the way on nutraceutical IPOs. There are still several large private companies that will be watching the IPO market with great interest. Remember, companies like GNC, Neways and Atkins Nutritionals are all still owned by private equity investors who will want an exit eventually.