Health & Wellness Investor Forum at NCN X
NCN's Health & Wellness Investor Forum III is October 15, 2013 at the City Club in San Francisco featuring market and transaction updates and discussion and a workshop-like session on open innovation in corporations and how external providers participate.
The Spring 2012 NCN Investor Meeting held in Washington, DC on May 23 was preceded by NCN’s second Health & Wellness Investor Forum, kicked off by a key statistic and reminder from NCN Principal Grant Ferrier to all investors regarding the strong underlying fundamentals of the nutrition and health & wellness industry: Natural and organic foods, functional foods, and lesser evil foods combined have grown from 13% penetration of the total food market in 1997 to 26% penetration in 2011 – representing a market of some $158 billion.
The industry’s resiliency has also been tested and not found wanting. According to the industry overview presented by NCN Principals Tom Aarts and Grant Ferrier, when the economy is strong, nutrition industry growth pulls ahead of total foods by 4 to 5 percentage points. Recession tends to narrow that gap to 2 to 3 points, but even in the harshest economic years of 2007-8 healthy foods still managed 3.5% growth compared to 1.6% for total foods, indicating staying power even when household budgets are tightest.
Also presenting at the forum:
- Marie Benedix of A Bigger Fishbowl, who illustrated new product and branding trends in the nutrition industry;
- Bob Burke of Natural Products Consulting, who spoke on natural and organic products;
- John Grubb of Sterling-Rice Group and Carlotta Mast of New Hope 360, both NCN Sponsors;
- Ryan Caldbeck of CircleUp, who discussed developments and opportunities in crowdfunding; and
- Janica Lane and Brent Knudsen of Partnership Growth Advisors (PCGA), who updated the audience on transaction and financing trends.
The Health & Wellness Investor Forum was co-sponsored by PCGA, NCN's Investment Banking Partner. Slides and materials from this forum are available to all NCN Cornerstone Investors, Sponsors and NCN X attendees. Contact gferrier(at)nutritioncapital.com.
Health & Wellness Investor Forum at NCN IX
In the wake of a well received Health & Wellness Investor Forum (a
new, value-added event held prior to NCN IX), educational sessions are becoming a permanent fixture at NCN meetings. Co-sponsored by NCN and Partnership Capital Growth Advisors, our Investment Banking Partner, the Fall 2011 meeting presented an industry overview, in addition to transaction and financing trends.
NCN Principals Tom Aarts and Grant Ferrier presented an overview of the market segments that comprise the nutrition industry, highlighting size, growth and recent trends. This was followed by a candid and passionate discussion about how to bridge the financing "gap" between the founder, friends and family, on one hand, and professional financial sponsors (VCs, PEs) on the other. Early-stage nutrition companies in that gap have a hard time attracting their next round of investors, who prefer to write larger checks for slightly bigger businesses. Yet, they need additional capital to get to a point where they are attractive.
Investment Alternatives Under Discussion:
1. Crowd financing structure, where many investors contribute or pledge a small amount of capital. Challenges include a) who would do due diligence, b) how information would be provided to investors in a timely manner, and c) how this arrangement would be set up legally.
2. Create model for or partner with different types of angel investor networks, like Golden Seeds or the Pasadena Angels
3. Venture fund specializing in funding small companies. Such a fund could possibly be initiated or managed by Nutrition Capital Network.
PCGA Presents Transaction and Financing Trends
In the second half of the forum, David Thibodeau and Janica Lane of Partnership Capital Growth Advisors (PCGA), co-sponsor of the forum and an NCN investment banking partner, presented an insightful overview of transaction and financing trends in health-related markets. Points of note:
1. Overall, IPO transactions are down sharply from their high in 2007, as are PE investments, although these recovered somewhat in 2010 and may continue to recover in 2011.
2. M&A transactions from $10M-$500M also took a dip after 2007, although these have since recovered or even strengthened. Larger transactions of $501M+, however, saw a bigger drop-off after 2007 and have yet to recover.
3. Several sources indicate that there is substantial liquidity in the market, seeking worthwhile investments.
4. During 2009-11, M&A EBIDTA multiples have increased; with 11.2x as the average YTD.
PCGA concluded that capital is available to health and wellness companies with strong fundamentals.
Healthy Living Industry Ahead of U.S. Economy
Overall, the healthy living industry (10-year CAGR of 7%) has seen annual growth rates that have been double those of the U.S. economy over the last decade. PCGA has developed a Healthy Living Index comprised of company stocks from relevant subsectors, including Healthy Food & Beverage, Personal Care, VMS (including ingredients), Weight Loss and MLM based companies. It has consistently outperformed the S&P index, both in terms of share price development and multiples that are "2 turns" better than those of the average S&P stock (10.8x vs. 9x). This is driven in particular by healthy foods and better-for-you personal care. Two subsegments that have fielded lower investor interest are: MLM-based stocks and weight management stocks.
PCGA reviewed recent corporate investments within its healthy living subsegments, highlighting notable success stories (Kashi, VitaminWater, Stonyfield), along with examples of some less successful acquisitions.
Key Success Factors
Participants and presenters agreed that one important key success factor (KSF) was to understand and retain an acquired brand's core consumer, in addition to “the soul” of the brand. Another KSF appeared to be to keep a prominent founder in place. Other success factors, according to a PCGA survey, included: cultural integration, "best people," focus on integration, and merger value. Factors for failure cited in the PCGA survey included: ignoring the integration challenge, overestimating synergies, problems with management integration, and critical issues discovered after the deal was closed.
PCGA identified two sectors in the healthy living space to watch going forward: Wellness / IT monitoring (e.g., Fitbit, Bodybugg) and new "super" markets in retail (e.g., Sunflower, EarthFare).