• Home
  •  
    Regions
    • Europe
    • UK & Ireland
    • DACH
    • Nordic
    • France
    • Southern Europe
    • Benelux
    • CEE
    • Asia
  •  
    Deals
    • Buyouts
    • Venture
    • Exits
    • Refinancings
    • Build-up
    • Turnaround
    • Secondaries
    • Advanced deals search
  •  
    Funds
    • Buyout
    • Venture
    • Mezzanine
    • Debt
    • Funds-of-funds
    • Secondaries
    • Fundraising pipelines
    • Advanced funds search
  •  
    GPs & LPs
    • GP profiles
    • LP profiles
    • GP news
    • LP news
    • Sponsors search
    • LPs search
  •  
    Secondaries
    • Deals
    • Funds
    • News
    • Analysis
  •  
    People
    • People moves
    • Analysis
    • In Profile
    • Q&A
    • Videos
    • Comment
  •  
    Analysis
    • In Profile
    • Fundraising
    • Q&A
    • Comment
    • Videos
    • Podcast
    • Reports
    • Data Snapshots
  •  
    Unquote Data
    • Deals search
    • Exits search
    • Funds search
    • Sponsors search
    • Advisers search
    • LPs search
    • League tables
    • Reports
  • Sign in
  • Sign in
    • You are currently accessing unquote.com via your Enterprise account.

      If you already have an account please use the link below to sign in.

      If you have any problems with your access or would like to request an individual access account please contact our customer service team.

      Phone: +44 (0)203 741 1137

      Email: Georgina.Lawson@acuris.com

      • Sign in
     
      • Newsletters
      • Account details
      • Contact support
      • Sign out
     
  • Follow us
    • Twitter
    • LinkedIn
  • Free Trial
  • Subscribe
Unquote
Unquote
  • Home
  • Regions
  • Deals
  • Funds
  • GPs & LPs
  • Secondaries
  • People
  • Analysis
  • Unquote Data
  • You are currently accessing unquote.com via your Enterprise account.

    If you already have an account please use the link below to sign in.

    If you have any problems with your access or would like to request an individual access account please contact our customer service team.

    Phone: +44 (0)203 741 1137

    Email: Georgina.Lawson@acuris.com

    • Sign in
 
    • Newsletters
    • Account details
    • Contact support
    • Sign out
 
Unquote
  • Investments

Health & nutrition investing: weighing up the risks

Sports supplements market shows healthy signs of growth
  • Ellie Pullen
  • 28 August 2014
  • Tweet  
  • Facebook  
  • LinkedIn  
  • Google plus  
  • Send to  

Investments in the sports supplements and dieting spaces are surprisingly thin on the ground, but the few deals that have taken place hint at a rewarding venture. Ellie Pullen investigates whether the sectors can be a gain or loss for investors

Recent statistics by the Organisation for Economic Cooperation and Development show that 52% of the adult population in the EU is either overweight or obese. In an increasingly image-driven society, a glut of weight-related products and services has cropped up in recent years to combat this, designed to cater to a consumer base that is generally impatient for visible results.

Piper Private Equity invested £3m in Diet Chef in May 2010. "The appeal of Diet Chef is its consistent message – it simplifies the dieting process," says Piper partner Peter Kemp-Welch. "To consumers, the simplicity of it is really attractive."

However, investments in the dieting space are few and far between, most likely down to the market being monopolised by behemoth Weight Watchers, which generated revenues of $397.5m in Q2 this year.

But there is still room for growth for other businesses, and the small gap in the market appears to be widening as Weight Watchers reported a 15.6% downturn in revenues for this quarter compared with Q2 2013. Furthermore, dieting is becoming less of a female market – just as sports nutrition is becoming less of a male-dominated one.

"Dieting products are a women's market in that the majority of sales come from women, but men are becoming a much bigger customer base, with sales to men growing significantly," says Kemp-Welch.

Core strength
Until quite recently, the sports supplements industry catered almost exclusively to a small group of consumers comprising bodybuilders, which is why, historically, it has not been overly-targeted by private equity.

"Sports nutrition – which we define as nutritional products for intensive weight-training and exercise – is a very niche market globally," says Robert Manz, a managing partner at Enterprise Investors, which counts Dutch sports nutrition company Scitec in its portfolio. "There is not much reliable market data out there because it's such a niche sector, but the estimates we have are that the global market is at a retail value worth around €5-6bn."

A major event within the sector took place in June 2004, when Piper acquired UK sports nutrition company Maximuscle in a £9.7m management buyout. Piper invested £3.2m for a substantial minority stake, according to unquote" data. At the time of the investment, Maximuscle's sales reached £8m.

"The brand came out of the bodybuilding culture, which is a small market," says Kemp-Welch. "What we picked up on through our own market research was that the product was starting to be used by young men who went to the gym regularly, which is a much more significant market."

Piper sold Maximuscle to Darwin Private Equity in December 2007 for £75m, generating a 10x money multiple and IRR in excess of 100%. The company's sales had increased to £27m a year. Darwin went on to sell Maximuscle in December 2010 to GlaxoSmithKline for £162m.

More recently, Enterprise Investors acquired Dutch sports nutrition firm Scitec in January 2013. "One of the attractions of the market is its potential to grow from the very niche, hardcore user base into more of the training public," says Manz. "In addition, you find more and more people interested in fitness and exercise, so you can see that eventually it could become a much bigger market than it is. All signs seem to indicate that it is a growing market – probably in the high single-digit, low double-digit percent mark per year."

Exercise caution
The elevated risk that comes with regulation for sports supplements could be a reason why the market has not been overrun by private equity. "One angle of regulation is ingredients, and making sure all of the products are completely compliant with not only EU regulation but also country-by-country limitations, which can vary from the EU rules," says Manz. "The common market exists in theory, but in certain categories of ingredients and dosages it is very different country-by-country."

At the time of Piper's investment in Maximuscle, regulation of ingredients was not such a routine procedure, meaning investing in a company offering these products posed even greater risks than usual.

"We made our investment in Maximuscle 10 years ago, when it was a much younger segment of the market," says Kemp-Welch, "so we were extremely sensitive to the risk of wrong ingredients ending up in products. However, contamination can occur quite a long way back in the supply chain, so you always have to go a further step back to the raw ingredient manufacturers to feel confident about provenance."

In Maximuscle's case, the company sends every batch to be tested by an independent lab that checks for banned substances on the anti-doping list, which is published yearly by the World Anti-Doping Agency and lists all substances prohibited in sport, such as steroids and stimulants.

Bulked up claims
However, stringent checks on ingredients are just one obstacle for companies providing sports nutrition products – and potential investors – to overcome. "Another perennial problem of the market was that of ludicrous claims from other businesses," says Kemp-Welch. "Part of Maximuscle's appeal was that its products had passed rigorous scientific tests."

Due to the nature of the products, both spaces – dieting and sports nutrition – are likely to comprise businesses exaggerating the effects of their products, claiming they can make a customer achieve more than is possible or are healthier than they actually are.

"Sports nutrition and other types of supplements are considered food products and not pharmaceutical products, so are regulated as food," explains Manz. "There were major changes in the EU regulatory framework over the last number of years that came to fruition in December 2012. Some very specific frameworks were put in place around health claims that can be made by food and food supplement products, whereas before it wasn't so clear. You would see – not only in sports nutrition, but many other types of supplements and food products – various claims being made about impact on health. It's now very clear what can and cannot be said.

"But because it's so new as a regulation, you see various levels of compliance and enforcement across the different markets," he adds. "So it can create an uneven playing field where not all companies play by the rules and enforcement is not consistent."

Mainstream muscles
The major hurdle of the industry, however, is expansion outside of its core user base. "It has been a difficult category for non-specialist users to understand, but there has been increasing awareness going on in the market," says Manz. "In terms of a European market, the UK is the most advanced for bringing protein products and supplements to mainstream fitness consumers. In the UK, you can find these products even in high street retailers like supermarkets or pharmacies, whereas in other parts of Europe it's more focused through speciality nutrition retailers and online channels."

However, investors have to be aware of the fine balancing act needed when trying to grow a business within this sector, as there is a danger of alienating the longer-term consumers. "Most intensive users associate their lifestyle with the brand they use, and therefore will change loyalties quickly if the brand reaches too far outside of its core base and loses credibility," says Manz. "We have seen other companies lose their core customer base thanks to going too mainstream."

Another area of growth – albeit smaller – is the increasing number of women using products, with more female-targeted protein drinks and bars cropping up in shops. "From our experience so far, it's very predominantly a male user base," notes Manz. "But women are becoming more interested in some of the products, mainly in the weight management and protein categories."

There is certainly room for growth within the dieting and sports supplements sectors, particularly with branching into more mainstream consumer bases, as well as the previously under-catered gender for both markets. The protein-for-sport industry alone has been forecast to be worth £8bn a year by 2017, according to reports.

However, GPs looking to invest in the space must be rigorous in their due diligence and aware of the swathe of new regulations that are providing some much-needed guidance. Says Manz: "I think anyone looking to invest in any kind of functional food business – and certainly supplementation – needs to be extremely aware of all of these regulations and how to comply with them, especially in an evolving regulatory compliance environment."

  • Tweet  
  • Facebook  
  • LinkedIn  
  • Google plus  
  • Send to  
  • Topics
  • Investments
  • Consumer
  • Health & Nutrition
  • Piper Private Equity
  • Enterprise Investors
  • United Kingdom
  • Netherlands

More on Investments

EMEA Public to Private M&A
Change of mind: Sponsors take to de-listing their own assets

EQT and Cinven seen as bellweather for funds to reassess options for listed assets trading underwater

  • Investments
  • 04 September 2023
Jan Cerny of BHM Group
BHM Group builds on PE strategy, eyes European medtech and renewable energy acquisitions

Czech Republic-headquartered family office is targeting DACH and CEE region deals

  • Investments
  • 01 September 2023
Reima Linnanvirta of Trind VC
Trind VC plans up to five early-stage investments in next six months

VC has deployed around 10% of its second, EUR 55m fund and plans to invest in up to 40 startups

  • Venture
  • 31 August 2023
Guillaume Fournier of Credo Ventures
Credo Ventures sees activity uptick, plans further deals in 2023 with EUR 75m fourth fund

Czech VC firm's latest vehicle is around 50% deployed and expects to make 25-30 deals in total

  • Venture
  • 23 August 2023

Latest News

Fund closes in US dollars
  • Funds
Stonehage Fleming raises USD 130m for largest fund to date, eyes 2024 programme

Multi-family office has seen strong appetite, with investor base growing since 2016 to more than 90 family offices, Meiping Yap told Unquote

  • 05 September 2023
Clinical trials and biotechnology
  • Buyouts
Permira to take Ergomed private for GBP 703m

Sponsor deploys Permira VIII to ride new wave of take-privates; Blackstone commits GBP 200m in financing for UK-based CRO

  • 04 September 2023
Public sector software
  • Exits
Partners Group to release IMs for Civica sale in mid-September

Sponsor acquired the public software group in July 2017 via the same-year vintage Partners Group Global Value 2017

  • 04 September 2023
EMEA Public to Private M&A
  • Investments
Change of mind: Sponsors take to de-listing their own assets

EQT and Cinven seen as bellweather for funds to reassess options for listed assets trading underwater

  • 04 September 2023
Back to Top
  • About Unquote
  • Advertise
  • Contacts
  • About Acuris
  • Terms of Use
  • Privacy Policy
  • Group Disclaimer
  • Twitter
  • LinkedIn

© Merger Market

© Mergermarket Limited, 10 Queen Street Place, London EC4R 1BE - Company registration number 03879547

Digital publisher of the year 2010 & 2013

Digital publisher of the year 2010 & 2013