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 Consumers have been encouraged to eat smarter by an obesity epidemic
and a burst of fitness-focused technology like gadgets and apps to
track exercise and calorie intake. Now companies supplying goods
like probiotic yogurt, advertised as being healthier for the gut,
and omega-3 biscuits, thought to improve brain and heart function,
have seen demand rise sharply.
"It's only a matter of time before the fight spills over into
corporate takeover wars," consultancy KPMG predicted in a report
released on Tuesday.
Bankers said moving into nutraceuticals was an obvious move for both
food and pharma companies given the blurring line between their
sectors.
"The space is ripe for M&A and I think you are going to see more,"
added Jeremy Johnson, managing director of North Carolina-based
Bourne, which advises on deals.
Food companies are likely to take the lead, chasing healthy products
to improve their profiles while drug companies, rocked by patent
expiries and the rise of biotech medicines, look to divest units,
forecast Bourne Partners, which estimated the market to hit $280
billion in 2018 - double that of 2011.
M&A activity so far has been relatively small, but the pace is
picking up. Bourne counted 185 mergers and acquisitions involving
private and public nutraceutical companies in 2014, up from 95 in
2011.
"It’s an industry which has seen a lot of interest and is likely to
see a lot of deals," said one consumer industry banker, adding that
many smaller companies were looking to deals with bigger players to
help them reach their potential customers.
While the concept of nutraceuticals is not new - the term was first
coined in 1989 - KPMG head of life sciences Chris Stirling believes
the current focus on health will spur more tie-ups as firms seek to
exploit increased consumer awareness.
"The consumer arms of pharma companies are going to have to look at
this area hard because there is so much public interest," he said.
"They need to get on the bandwagon."
COMPLEMENTARY SKILLS
Each industry can contribute considerable expertise to a merger,
while also needing to extract very specific results.
Food companies are highly skilled at low-cost supply but want
products that offer an edge - and a price premium - in the face of
changing eating habits and a brutal retailer price war.
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Drug companies, meanwhile, have deep research expertise and
understanding of regulatory processes that food manufacturers can
only dream of. Many of them have opted to maintain a strong consumer
health business to blunt the inherent risks of their drug research
side.
There have already been several recent deals on the food side,
including Mondelez International's February purchase of a gluten-
and allergen-free snack company and Hershey's January deal for a
maker of high-protein meat snacks.
But no big food company has yet done as much to blend food and
medicine as Nestle.
In 2011 the company formed its Nestle Health Science unit, which has
since invested in companies that make products such as drinks for
people with metabolic disorders and a medical food sold for the
dietary management of Alzheimer's disease.
Late last year, Nestle restructured the unit to focus on consumer
care, medical nutrition and novel therapeutic nutrition.
Nestle Chief Executive Paul Bulcke said last week the unit was now
in "an excellent position to lead the development of nutritional
therapies that transform the way people, patients and healthcare
professionals manage health."
"It's a promising and interesting new opportunity for Nestle," he
told the company's annual shareholder meeting.
On the pharma side, major names like GlaxoSmithKline, Abbott, Pfizer
and Johnson & Johnson all have nutritional brands and dietary
supplements that could play an expanded role as the nutraceutical
market evolves.
Alliance Boots, now part of Walgreens Boots Alliance, gave a glimpse
of the future in November when it announced the purchase of PhD
Nutrition, which makes protein powder and nutrition bars.
(Editing by Sophie Walker)
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