Vitamins, Supplements, & Nutrition

The latter is an especially big contributor to the increased demand for vitamins, supplements, and nutrition products. A McKinsey & Company survey of approximately 7,500 consumers in six countries found that 79% believe wellness is important and 42% view it as a top priority. These buyers include wellness enthusiasts who follow brands on social media; an increasing base of socially responsible consumers who seek brands that only use clean, natural, sustainable ingredients; and price-conscious buyers who want the best deal on the nutrition products they value.

While much of the growth in this sector has come from small, niche products, both branded manufacturers and contract manufacturers have demonstrated their ability to excel in this arena. As a result, today’s consumers have more product choices and more purchasing options than ever. For some products, e-commerce sales are growing at a faster pace than sales through traditional channels like mass merchandisers (both grocery and drug chains), club stores, and specialty retailers like Vitamin World and GNC.

Yet, despite the positive momentum and considerable tailwinds, businesses in this sector still face challenges on several fronts. A saturated, fragmented market is fueling a consolidation trend that is expected to continue for the foreseeable future. Other than Nature’s Bounty, which represents an estimated 0.7% of the market, no other manufacturer owns a measurable share. Meanwhile, regulatory oversight and media attention are both on the rise, fueled by product recalls, product mislabeling instances, and studies casting doubt on supplement efficacy or safety. The FDA’s “Know Your Supplement” Campaign has only heightened consumer attention and scrutiny.

Both strategic acquirers and financial buyers are taking a keen interest in this sector, with particular attention on science-backed brands that can support efficacy claims and contract manufacturers with a strong client base and advanced production capabilities. Though total deal volume in the sector is down—from a peak of 137 transactions in 2021 to a low of 10 through mid-year 2023—investor interest is expected to keep M&A activity moving at a moderate pace through year-end 2023.

Strategic acquirers represent the lion’s share of M&A activity for the sector, involved in 80% of the deals announced or closed this year. Many large companies in this space are competing to purchase specialty businesses that can expand their offerings with a new and innovative condition-specific supplement or a company that can open doors to new customer segments.

Some of the most notable vitamin, supplement, and nutrition M&A deals completed by strategic acquirers over the last 18 months include:

• • Roquette Freres’ acquisition of Qualicaps Co., Ltd., a manufacturer and distributor of pharmaceutical and health food capsules
  • The sale of Adare Pharmaceuticals, a developer and manufacturer of postbiotic drugs, to DSM-Firmenich
  • The acquisition of US Pharma Lab, Inc., which develops and manufactures herbals, minerals, vitamins, amino acids, and specialty dietary supplements, by Biofarma S.r.l.
  • Thorne HealthTech’s purchase of PreCon Health, which develops and manufactures dietary supplements that support pre- and post-impact brain health
  • The sale of AquaCap, which manufactures liquid filling of two-piece capsules for nutritional supplements, to Vantage Nutrition
  • The sale of Best Formulations, a contract manufacturer of nutraceuticals, dietary supplements, and other products, to Sirio Pharma Co.
  • Nestle Health Science’s acquisition of Orgain LLC, maker of plant-based nutritional and organic food supplements

Factors that Drive Business Owners in this Sector to Pursue an M&A Transaction

Though many factors are driving growth and momentum in this sector, when a business owner contemplates selling a vitamin, supplement, or nutrition products company it is usually to overcome certain challenges to growing the business or capitalize on timely opportunities. The following are among the most common drivers of an M&A transaction in this sector.

Branded manufacturers might seek to:

• • Diversify their product mix by adding new formulations or new brands that appeal to a different customer base, which might create additional opportunities to sell existing brands to this new segment
  • Expand their distribution channels and operate in a more omnichannel environment (e.g., a brick-and-mortar-only company acquiring a business with a strong e-commerce presence or a successful DTC business acquiring a smaller company with a physical footprint)
  • Vertically integrate the business by purchasing a contract manufacturer in order to bring that capability in-house

Contract manufacturers might be looking to:

• • Acquire another contract business that complements its existing capabilities (e.g., the addition of liquid product manufacturing capabilities to a company that only produces dry products currently)
  • Acquire one of their current customers as the first step in a strategy to build their own brands
  • Obtain the intensive capital required to expand their operation, upgrade equipment or systems, or develop the capabilities to offer additional services such as packaging design/development and fulfillment

What to Consider Before Selling Your Vitamin, Supplement, or Nutrition Business

Selling your vitamin, supplement or nutrition company is likely to be one of the biggest decisions you’ll ever make, and one that will have long-lasting implications. Questions like these can help guide you as you determine whether it’s the right time to sell and whether your business is prepared for the sale process.

How to Raise Capital for Your Vitamin, Supplement, or Nutrition Business

For business owners that are not ready to acquire or be acquired, it might be the right time to obtain capital to fund key initiatives or capture liquidity to diversify your net worth. Raising capital is often a precursor to selling the business down the road.

The two main types of capital are debt and equity, and each presents advantages and disadvantages:

The best approach to raising capital for your vitamin, supplement, or nutrition business will depend on the nature of your operation to a large extent. A manufacturer with substantial physical assets can use them as collateral to obtain debt capital, whereas an online DTC brand won’t have as many assets to borrow against. However, a business without significant physical assets might consider working with a cash flow-based lender, borrowing against the company’s projected cash flows. If your business is financially sound and your cash flows are strong, cash flow-based lending may be a viable way to borrow to cover short-term needs, such as expanding your staff or beefing up your marketing presence.

Whether you opt for debt or equity, be sure to start the process of lining up your funding early, when your business is financially healthy and your odds of obtaining the optimal rates and terms are high.

Since raising capital is complex, consider hiring an investment banker to serve as your guide toward achieving the best outcome. Your investment banking partner will ask about your capital goals and how you plan to use the funds, then recommend the best capital structure to achieve your objectives, market your business to the right capital sources, and negotiate and finalize the best terms.

The Forbes Guide to Middle Market Capital Formation is an informative and comprehensive resource for business owners that are looking to raise capital.