Prestige Brands Expects OTC Assets Will Shake Loose From M&A Activity

“If you looked at it based on history,” consolidation has created opportunities to acquire OTC brands, says Prestige Brands CEO Matthew Mannelly. The firm’s interest in adding brands is “stronger than ever,” he adds.

Prestige Brands Holdings Inc. head Matthew Mannelly looks at recent pharma industry mergers and sees not only industry consolidation, but also the likelihood of some consumer health care properties becoming the firm’s next acquisition targets.

Prestige Brands was the No. 6 OTC drug firm in North America with $1 billion sales for 2013 when including revenues from Insight Pharmaceuticals Corp., which Prestige is adding in a deal it expects to close before October this year, according to the Tarrytown, N.Y.-based firm’s fiscal 2014 fourth-quarter earnings statement. Among independent OTC drug marketers – those not part of pharmaceutical firms – Prestige is in the lead.

Other M&A activity in the OTC space likely will make available additional brands that could interest Prestige. In particular, the GlaxoSmithKline PLC and Novartis AG agreement to combine their consumer health care product businesses in a joint venture and Bayer AG’s acquisition of Merck & Co. Inc.’s’ consumer product business should make some brands available (Also see "Bayer Lands Merck Consumer As Springboard to Lead Global OTC Industry" - Pink Sheet, 6 May, 2014.).

During Prestige’s May 15 earnings call, Mannelly noted large mergers and other acquisitions in the pharma space often lead to brand or business sales by firms involved in the deals.

Acquire And Climb

Since joining Prestige Brands in September 2009, President and CEO Matthew Mannelly led the firm to OTC-centric growth driven by acquisitions. In addition to the Insight Pharmaceuticals and the Hydralyte drink brand in 2014, Prestige’s consumer health care acquisitions include:

• July 2013: Australian OTC firm Care Pharmaceuticals Pty Ltd.
• December 2011: 17 North American consumer health care lines from GlaxoSmithKline in a $660 million deal, including BC and Goody’s analgesic brands, Beano gas treatment, FiberChoice supplement and Sominex sleep aid.
• December 2010: the motion sickness aid Dramamine from Johnson & Johnson's McNeil in a $76 million acquisition.
• September 2010: $190 million for Blacksmith Brands, with the Efferdent and Effergrip denture and PediaCare and Luden's cough and cold lines, and the allergy drug NasalCrom.

Regulatory approval of large mergers often requires firms involved to divest businesses or brands to preserve competition in the marketplace by blocking unfair concentrations of market shares in certain product categories.

“If you look at the history in the consolidation and the acquisitions that have happened of those sorts, it has created M&A opportunities,” said Mannelly, Prestige’s president and CEO. “If you looked at it based on history … I would expect opportunities to be there,” he added.

And Prestige’s agreements announced in April – to acquire Insight, including the firm’s first $100 million brand, Monistat – for $750 million and Australian rehydration drink brand Hydralyte for an undisclosed amount – will not slow the firm acquiring other brands (Also see "In Brief: Prestige Buys Insight, Quarterly Earnings For MJN And Colgate, Bio-Recovery Warned On Claims" - Pink Sheet, 28 Apr, 2014.). The firm closed the Hydralyte deal April 30.

A good thing for Prestige, Mannelly said, is “the scarcity of valuable brands and quality portfolios out there” combined with “a significant amount of consolidation over the last few years.”

“Even with the most recent two acquisitions, we continue to have very strong growth ambitions with M&A and it’s stronger today than ever and we’ll continue to pursue,” he added.

In addition to pursuing additional brands, Prestige has spurned an acquisition offer. Mexican firm Genomma Lab Internacional SAB de CV in May 2012 dropped its unsolicited bid to take over Prestige after refusing Prestige’s demand for a higher price (Also see "Genomma Refuses To Raise Price, Drops Prestige Bid" - Pink Sheet, 7 May, 2012.).

Add Brands, Boost Ads

Prestige, as it has with other brands it acquires, will boost advertising and distribution support for the Monistat feminine care line and work on line extensions.

“We have every intention of doing that like we've done with the acquisitions we've purchased in the past. I think another reason we're particularly excited about feminine care is that platform is very attractive from an M&A standpoint moving forward as well,” Mannelly said.

Prestige Brands’ Monistat line includes the 7 Day Treatment – Cream version.

The Clear Eyes line also will get more advertising support featuring the brand’s spokeswoman, actress and singer Vanessa Williams (Also see "People In Brief" - Pink Sheet, 3 Jun, 2013.).

Mannelly said TV ads featuring Williams will premier “very shortly” and will focus on the product’s allergy indication. Additionally, the firm is expanding digital advertising for Clear Eyes and other OTC brands.

“We’re going to continue to build our digital presence and we’re going to continue to learn with some of the digital efforts that we’re making today to help us continue to build that,” the CEO said.

New Clear Eyes brand advertising will feature the product’s allergy indication.

Prestige’s OTC product net revenues for the fourth quarter fell 8.3% to $122.7 million and 4.3% for the full year to $513.8 million due to retailers lowering their inventories, a comparatively slow season for incidences of cough/cold and the return to stores of products that had been recalled by Johnson & Johnson and Novartis, according to Prestige’s earnings statement.

The firm’s full-year overall net income for the January-March period decreased 17.3% from the year-ago period to $16 million, 30 cents per diluted share, but for the full year increased 10.8% to $72.6 million. Prestige expects revenue growth of 15% to 18% for its fiscal 2015, which began April 1.

The firm reported full-year earnings per share of $1.53, exceeding its guidance of $1.48 to $1.52, and expects EPS of $1.75 to $1.85 for its fiscal 2015.