Adam Ismail12.01.11
It has been a fairly quiet fall from a financial perspective in the nutrition industry, but there are still a few transactions being completed that are worth a little deeper analysis. In particular, they have strategic implications for the various sectors of the industry in which they play.
The Ingredient Sector
In the ingredient space, two reputable companies were acquired—AM Todd and Kelatron. What is unique about both is that they held strong competitive positions in their niches.
AM Todd was purchased by WILD Flavors, which has been actively expanding its business beyond flavors and fragrances. Currently, it holds an established position in the food, beverage and supplement industries as an ingredient manufacturer.
AM Todd has also crossed over from the food industry to the supplement industry. As background, AM Todd has maintained a leadership position in natural mint oils and extracts since the Civil War. However, its portfolio changed in 1999 when the company acquired East Earth Herb. It has also been very active in China, moving much of its manufacturing into Chinese facilities and investing heavily to upgrade to Western manufacturing standards.
WILD is already a global company, so strategically AM Todd was a natural acquisition target. For the rest of the industry, it is another step closer to blending the flavors and botanical extract industries. This trend has quietly been taking place for several years because the manufacturing methods are similar. While much of the botanical industry has been outsourced to China, larger global companies like WILD are well positioned to take botanical extracts to market with their established distribution capabilities.
The rationale for the Kelatron acquisition was similar. Innophos supplies minerals and mineral phosphates to the food, supplement and pharmaceutical industries, while Kelatron provides a portfolio of minerals that is largely complementary. Innophos is a much larger company, with $714 million in annual revenues and a history as part of a larger pharmaceutical enterprise. Kelatron has been acquired for about $21 million, but it gains a chelated mineral portfolio and mineral spray drying technology that will allow it to serve its existing customer base better.
While you cannot easily point to a trend of mineral companies consolidating, the pharmaceutical space has been eyeing mineral manufacturers for some time. The products represent one of the few nutraceuticals where there is high demand from multiple industries, which means we may see more consolidation in this sector in the future.
The Consumer Arena
On the consumer side, Starbucks’ acquisition of Evolution Fresh is quite interesting. Starbucks has acquired natural and organic food companies in the past, including Tazo Tea. It has also launched functional foods within its stores in the past, either through internal product development or by working with functional food brands. But not all of these efforts have been successful to date.
Nonetheless, Starbucks has not given up on health and wellness. In fact, it has made the acquisition of Evolution a central piece of how it is going to expand its presence in this field. Starting next year, Starbucks will launch a chain of juice and health food bars that will leverage Evolution Fresh’s small but growing brand of fresh juices.
Evolution was acquired for $30 million, so it is significantly smaller than Starbucks, but it potentially offers Starbucks much more value. For one, Starbucks already has an established consumer retail brand, with Starbucks drinks and coffee being sold in grocery stores nationally. Evolution Fresh juices are primarily sold in the Western U.S. at the moment, but could potentially be placed into Starbucks’ national distribution if they can sort out refrigerated distribution and access to a large enough supply of fresh produce.
Evolution also has a fresh fruit and vegetable business that could give Starbucks access to a section of grocery and club stores where it is not already playing. Depending on how successful its juice bar launch is, this could also provide another means of expanding its consumer product business with co-branded products.
While significant acquisition activity in the nutrition industry has slowed in the past few months, these three recent deals may have interesting strategic implications. Time will tell if we see more botanical and mineral ingredient providers being acquired, and as soon as next year we could see how Starbucks takes the small Evolution Fresh brand and leverages it throughout the rest of its business.
The Ingredient Sector
In the ingredient space, two reputable companies were acquired—AM Todd and Kelatron. What is unique about both is that they held strong competitive positions in their niches.
AM Todd was purchased by WILD Flavors, which has been actively expanding its business beyond flavors and fragrances. Currently, it holds an established position in the food, beverage and supplement industries as an ingredient manufacturer.
AM Todd has also crossed over from the food industry to the supplement industry. As background, AM Todd has maintained a leadership position in natural mint oils and extracts since the Civil War. However, its portfolio changed in 1999 when the company acquired East Earth Herb. It has also been very active in China, moving much of its manufacturing into Chinese facilities and investing heavily to upgrade to Western manufacturing standards.
WILD is already a global company, so strategically AM Todd was a natural acquisition target. For the rest of the industry, it is another step closer to blending the flavors and botanical extract industries. This trend has quietly been taking place for several years because the manufacturing methods are similar. While much of the botanical industry has been outsourced to China, larger global companies like WILD are well positioned to take botanical extracts to market with their established distribution capabilities.
The rationale for the Kelatron acquisition was similar. Innophos supplies minerals and mineral phosphates to the food, supplement and pharmaceutical industries, while Kelatron provides a portfolio of minerals that is largely complementary. Innophos is a much larger company, with $714 million in annual revenues and a history as part of a larger pharmaceutical enterprise. Kelatron has been acquired for about $21 million, but it gains a chelated mineral portfolio and mineral spray drying technology that will allow it to serve its existing customer base better.
While you cannot easily point to a trend of mineral companies consolidating, the pharmaceutical space has been eyeing mineral manufacturers for some time. The products represent one of the few nutraceuticals where there is high demand from multiple industries, which means we may see more consolidation in this sector in the future.
The Consumer Arena
On the consumer side, Starbucks’ acquisition of Evolution Fresh is quite interesting. Starbucks has acquired natural and organic food companies in the past, including Tazo Tea. It has also launched functional foods within its stores in the past, either through internal product development or by working with functional food brands. But not all of these efforts have been successful to date.
Nonetheless, Starbucks has not given up on health and wellness. In fact, it has made the acquisition of Evolution a central piece of how it is going to expand its presence in this field. Starting next year, Starbucks will launch a chain of juice and health food bars that will leverage Evolution Fresh’s small but growing brand of fresh juices.
Evolution was acquired for $30 million, so it is significantly smaller than Starbucks, but it potentially offers Starbucks much more value. For one, Starbucks already has an established consumer retail brand, with Starbucks drinks and coffee being sold in grocery stores nationally. Evolution Fresh juices are primarily sold in the Western U.S. at the moment, but could potentially be placed into Starbucks’ national distribution if they can sort out refrigerated distribution and access to a large enough supply of fresh produce.
Evolution also has a fresh fruit and vegetable business that could give Starbucks access to a section of grocery and club stores where it is not already playing. Depending on how successful its juice bar launch is, this could also provide another means of expanding its consumer product business with co-branded products.
While significant acquisition activity in the nutrition industry has slowed in the past few months, these three recent deals may have interesting strategic implications. Time will tell if we see more botanical and mineral ingredient providers being acquired, and as soon as next year we could see how Starbucks takes the small Evolution Fresh brand and leverages it throughout the rest of its business.
