Summer 2014 Heats Up with M&A Activity

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WholeFoods Magazine Staff
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Merger and acquisition (M&A) activity has been heating up with several large transactions over the past few weeks.

First, Kroger Co., the largest supermarket chain in the United States, plans to buy online retailer Vitacost.com Inc. for $280 million, giving the grocery giant a new inlet into the healthy-living channel. This merger comes on the heels of its purchase of the Harris Teeter supermarket chain for $2.5 billion this past January.

Board members from both firms and 26% of Vitacost shareholders approved the $8-a-share deal. Vitacost’s 2013 sales were $382.7 million.

Kroger has been active in the organic and natural foods market with its Simple Truth private label, which has been giving the chain additional revenue. The Vitacost acquisition will give Kroger even more room to grow in the health and wellness sector.

“For Kroger, this is a perfect opportunistic play,” said Jay Jacobowitz, merchandising editor at WholeFoods Magazine, and founder/president of Retail Insights. “Kroger only has online capabilities for shipping and home delivery through its Harris Teeter acquisition and King Soopers. This gives them 50 states online coverage with something like 40,000-45,000 SKUs, most of which they don’t currently carry.”

Kroger will also be able to take advantage of Vitacost’s existing infrastructure for fulfillment and for mobile online customer service, already tailored for the health wellness market. This gives Kroger “a major shot across the bow at brick-and-mortar-only supernaturals that have just been dipping a toe in the water of online services.”

 Kroger sales were up 10% in the last quarter, which some analysts attribute to the Harris Teeter acquisition. “Vitacost has been losing money, and Kroger has been very profitable,” says Jacobowitz.

 Overall, Jacobowitz feels the acquisition is a smart move: “From every aspect, this looks like a brilliant play.”

Another retail giant, Vitamin Shoppe of North Bergen, NJ, bought contract manufacturer FDC Vitamins LLC, which does business as Nutri-Force Nutrition for about $85 million.

Tony Truesdale, Vitamin Shoppe’s CEO, said in a prepared statement, “The company is attractive to us for a number of key reasons that fit with our long-term needs and include: a high-quality management team, product development expertise and capability, and the ability to produce and ship from one facility four key form factors – soft gels, tablets, powders and capsules”

He also hinted that the merger would allow Vitamin Shoppe to bring its own products to market faster in response to new product trends. He added that its current manufacturers won’t necessarily be cut out of the deal: “We will continue to rely on existing trusted contract manufacturers in order to mitigate the risk of single-source supply.”

There have also been some shake-ups in the world of suppliers. Archer-Daniels Midland (ADM) is set to acquire Swiss-German ingredient maker Wild Flavors in a $2.99-billion transaction, the company’s largest deal ever.

ADM specializes in grain processing, while Wild Flavors provides natural flavorings, colors and ingredients to more than 3,000 customers in the food and beverage industries. Wild Flavors’ sales totaled 838 million euros in 2012 and are forecast to grow to about 1 billion euros this year, according to a statement from ADM Chairman and CEO Patricia Woertz. While many may be familiar with Wild Flavors’ Capri-Sun brand, an ADM spokesperson stated that the brand was not part of the deal, and the juice drink will remain under the ownership of Wild.

Woertz also stated, “ADM and Wild Flavors will create one of the leading flavor and specialty ingredient companies in the world, with sales approaching $2.5 billion and significant room to grow.” Other ADM representatives added that this would allow ADM to offer food and beverage companies a suite of systems to enhance and improve their products. This acquisition comes on the heels of a company pledge to diversify its portfolio and expand its international presence, with a plan to invest 60% of its capital expenditures into assets outside of the U.S., according to COO Juan Luciano.

Toronto, Canada-based Jamieson Laboratories acquired Lorna Vanderhaeghe Health Solutions, and made founder Lorna Vanderhaeghe a key shareholder of Jamieson and a member of its board of directors.

As for finished products, Hormel Foods Corp. of Austin, MN, will purchase CytoSport, maker of Muscle Milk, for $450 million. Cytosport’s 2014 sales are expected to hit $370 million by yearend.

Philadelphia, PA-based MediNatura Inc., said it will purchase the Heel Group’s USA operations. The OTC Heel products Traumeel and Zeel will be phased out and replaced with T-Relief and T-Relief Arthritis from MediNatura. Heel Group will close its U.S. and Canadian businesses by the end of August, brought on mainly by legal issues. In a statement, the firm said, “In the USA and Canada, manufacturers of OTC homeopathic medicinal products have been confronted with accusations through class action lawsuits. Heel Inc., the Heel Group’s U.S.-based subsidiary, was also faced with two such attempts recently. Both cases have been settled without conceding the allegations. The financial burden on Heel Inc., however, was substantial.”

Published in WholeFoods Magazine, August 2014 (online 7/11/14)