Cereal Firm Post Expands Into Supplements With Premier Nutrition Pick-Up
This article was originally published in The Tan Sheet
Executive Summary
Seeking to diversify its portfolio for more dramatic sales growth, Post Holdings acquires Premier Nutrition, maker of Joint Juice and Premier Protein supplements. The $180 million transaction follows closely Post’s purchase of probiotic bar and natural cereal maker Attune Foods.
Breakfast cereal maker Post Holdings Inc. is making an aggressive play in the nutritional products space with its acquisition of Premier Nutrition Corp., the marketer of Joint Juice and Premier Protein supplements.
The $180 million cash deal, which gained Federal Trade Commission clearance Aug. 23, closely follows Post’s acquisition of probiotic bar and natural cereal maker Attune Foods Inc. and granola contract manufacturer Hearthside Food Solutions LLC, which is being combined with Attune.
St. Louis-based Post, which announced the PNC deal Aug. 2, is diversifying its portfolio in search of more dramatic sales growth. Despite extending and refreshing well-known cereal lines such as Fruity Pebbles, Grape-Nuts and Honey Bunches of Oats, the company reported fiscal 2012 net sales down 1% to $958.9 million, in the face of weakening category demand. U.S. sales represent about 86% of the company’s business, according to Post’s 2012 annual report.
With Emeryville, Calif.-based PNC, Post gains Joint Juice glucosamine and chondroitin liquid supplements and drink mixes for joint health, Premier Protein energy bars and shakes, and Titan high-protein bodybuilding bars. The present incarnation of PNC was formed by the October 2011 merger of Joint Juice, then maker of its eponymous supplement line, and Premier Nutrition (Also see "In Brief" - Pink Sheet, 17 Oct, 2011.).
Joint Juice products
Image courtesy of Premier Nutrition
“Premier Nutrition's brands are well-positioned to benefit from the broadening mainstream consumer adoption of health and wellness trends in everyday food and nutrition choices,” Post President and Chief Operating Officer Terence Block said during the firm’s third-quarter earnings call Aug. 8.
“The combination of a brand and category, exhibiting dynamic growth with an outstanding entrepreneurial management team, made us comfortable that acquiring Premier Nutrition Corp. would afford Post the ability to generate long-term returns in excess of our cost of capital,” he added.
Entrée To A New Channel
Post says it expects PNC to contribute on a full-year basis between $130 million and $140 million in sales and $17 million to $20 million in earnings before interest, taxes, depreciation and amortization.
The $9.2 million Attune acquisition, while relatively small, marked Post’s first foray into the natural channel and “affords Post an organic, probiotic platform for future other considerations,” Block said on an earnings call shortly after the December 2012 transaction.
Attune’s brands, including attune probiotic chocolate bars, Erewhon organic cereals and Uncle Sam high-fiber cereals, have distribution in natural and mass-market retail chains. PNC products, meanwhile, are largely mass-market supplements, sold in stores such as Kroger, Target, Walgreens and Walmart.
Post announced in May 2013 its agreement to acquire Hearthside, which makes Golden Temple and Willamette Valley Granola Company cereals and private-label granola. The $158 million transaction came with a 135,000-square-foot manufacturing facility in Eugene, Ore., which has been incorporated into the Attune business unit.
Post is leaving both PNC and Attune under independent and existing management. PNC CEO David Ritterbush took the reins at Joint Juice in September 2010, before the Premier Nutrition merger, and led the firm in launching its first liquid shot product, Joint Juice Easy Shot (Also see "Joint Juice Flows Toward Dietary Supplement Industry" - Pink Sheet, 14 Feb, 2011.).
“Premier Nutrition's brands are well-positioned to benefit from the broadening mainstream consumer adoption of health and wellness trends in everyday food and nutrition choices.”
– Post President Terence Block
Market analysts at Barclays, Goldman Sachs and Stifel said in research notes at the time of the deal announcement that they expect PNC to serve as a platform for future Post acquisitions in the portable nutrition segment, as well as provide near-term distribution synergies and additional organic growth. Jason English of Goldman said PNC and Attune together have the potential to add more than 2 percentage points to Post’s organic sales growth on an annual basis.
Still, the growth trajectory of protein supplements is no sure thing. Andrew Lazar of Barclays noted that, despite apparent consumer demand for on-the-go, high-protein food options, “it remains to be seen whether recent protein-seeking behavior from consumers is a sustainable, long-term trend.”
Appetites For Acquisition
As a food company acquiring its way into finished supplement products, Post is somewhat unusual. But the PNC transaction reflects growing trends in the larger consumer packaged goods industry.
PNC’s portfolio, comprising drinks and bars rather than capsules and tablets, appears a good fit for a food marketer. The PNC executive team also brings deep experience in the packaged foods space; Ritterbush and his VPs of marketing and sales are veterans of Dreyer’s Grand Ice Cream.
Some of the more notable deals in the supplement segment the past two years have come compliments of companies with sizable consumer health product businesses: Pfizer acquired Emergen-C marketer Alacer, Procter & Gamble picked up whole-food supplement maker New Chapter, Church & Dwight gained gummy vitamin manufacturer Avid Health, and Reckitt Benckiser paid an impressive premium to snatch Schiff Nutrition International away from competing suitor Bayer.
After a vigorous year of supplement mergers and acquisitions in 2012, the market has cooled in 2013, possibly as a result of inflated price tags for potential acquisition targets (Also see "Garden Of Life Blooms For Atrium During M&A Break" - Pink Sheet, 15 Aug, 2013.).
Additionally, the number of independent supplement companies with established national distribution has dwindled. Remaining mid-sized supplement firms that may appeal to larger players as acquisition candidates include Bluebonnet Nutrition Corp., MegaFood maker [FoodState Inc.], [NOW Foods] and [Rainbow Light Nutritional Systems].
Though not all are interested in the supplement category, multinational food companies see promise in expanding their natural, organic and healthier offerings. For example, the Campbell Soup Co. in 2012 picked up Bolthouse Farms, a maker of juice, vegetable and protein smoothies, while PepsiCo in 2011 established a global nutrition group to drive research into nutritional product applications (Also see "Nutrition Market Becomes Sweet Spot For Large Food And Beverage Firms’ Investments" - Pink Sheet, 23 Jul, 2012.).