Deal-Making Frenzy

Reviewing three major deals sealed in the early part of this year to see where the market may be headed.

ByAdam Ismail

At least 11 deals in the nutrition industry were consummated in January—that’s nearly one for every other work day of the month! The deals ranged in scope from to buying into new niches, to buying out JV (joint venture) partners, to moving down the value chain. Three of them were notable because of their motivations and broader industry implications.

Coca-Cola Acquires FUZE: This deal seems to continue the trend of small new-age beverage companies carving out new and unique positions in the beverage market, and then being bought by one of the giants like Coke or Pepsi when they hit a critical mass. The two companies already maintained a number of close ties—FUZE was already leveraging 20 different Coca-Cola bottlers—so cementing the deal seemed to make sense. In addition, Coke has publicly been trying to expand its presence in non-carbonated beverages for quite some time.

The reason this deal is worth highlighting is because there are still many similar properties out there. What many of these smaller companies have been successful in doing is carving out their own unique niches. By segmenting the market really well, these companies are able to grow at a much faster rate. Visit any U.S. supermarket and you will still find a number of new-age brands in energy drinks, juice smoothies, tea fusion beverages, etc. Many of these use parts of the distribution networks of larger companies like Coke or Pepsi already, just like FUZE, and are potentially attractive buyout candidates.

Danone Buys Out Calpis & Ajinomoto: This deal highlights the value in one of the highest growth areas in all of the food and nutrition market—functional dairy. Danone has long been a powerhouse in yogurts and other dairy products globally, but it formed the Calpis Ajinomoto Danone JV first with Ajinomoto, then adding Calpis to grow in the Japanese market. Ultimately this established the Danone brands in Japan. At the same time, healthy dairy has been growing at double-digit rates globally. For Danone, buying out its partners was essentially a means for them to buy a greater share of the rewards that the high growth in the dairy segment will bring. Asia is a key growth market for both Danone and dairy in general, so having this control will also help the company use its Japanese business to grow the rest of its Asian business.

Austevoll Seafood Acquires EPAX: The EPAX transaction is notable because it is not the type of transaction typically seen in the nutraceuticals industry. Austevoll is a fish meal and crude fish oil manufacturer with facilities Norway, Chile and Peru—three of the major fish oil locales of the world. Its decision to buy EPAX, a refiner and manufacturer of fish oil concentrates, essentially allows it to capture greater value by moving further down the value chain. While most fish oil is used for aquaculture feeds, areas like human nutrition are more valuable on a per kilo basis. In buying EPAX, Austevoll is essentially paying to capture that extra margin. However, that is not the only source of value in this deal. Through the acquisition EPAX could actually gain greater supply chain security by aligning with a crude fish oil supplier. In those terms, the deal creates a win-win situation for both parties.

Summary

Usually this column focuses more on the financial aspects of deals, but given the pace of these deals in the early part of the year it is important to examine the strategies behind some of these transactions. These strategies may be indicative of larger trends in the market or continuation of existing trends. The FUZE deal indicates that there will likely be more acquisitions of a similar nature because there are still several companies with very similar properties out there. The Danone transaction shows one of the largest dairy companies in the world making an even bigger bet in areas like healthy yogurts and seeing strong growth in Asia. The EPAX deal shows the advantages that companies can gain from integration into new parts of the value chain and creating win-win scenarios in commodity markets.NW