Despite concerns about the ingredients contained in nutritional supplements, M&A activity has continued. Vitamins, minerals and supplements (VMS) deals were all the rage in 2014, but after a state government crackdown in February, dealmakers were not sure sales and sentiment in the industry would rebound quickly. The idea that the pace of VMS dealmaking might slow down percolated after New York Attorney General Eric Schneiderman ordered GNC Holdings Inc. (NYSE: GNC), Target Corp. (NYSE: TGT), Wal-Mart Stores Inc. (NYSE: WMT) and Walgreens Inc. (NYSE: WAG) to stop selling store-brand herbal supplements after DNA testing showed that the vast majority of supplements at some stores – a whopping 79 percent – did not contain the key ingredient advertised, or were contaminated with materials not listed on labels. In April, Schneiderman announced he had reached a deal with GNC to implement stringent quality-control standards. The investigation weighed heavily on the industry, which relies greatly on consumer sentiment to sell products. And those sales often determine both dealmaker interest in the company and purchase price. VMS deals seemed to be rolling out at a faster pace in 2014 than 2015, but there are signs that sales in the sector are growing – indicative that M&A transactions will continue. “Our research analyst said industry sales rose 6.2 percent from early June to mid-July,” says Laura Nolan, a vice president at Little Rock, Arkansas-based investment bank Stephens. A few VMS transactions popped up over the summer. In July, private equity firm North Castle Partners invested in SmartyPants Vitamins, which makes “gummy” vitamins and supplements for adults and children. The Greenwich, Connecticut-based firm has invested in a handful of healthy-living businesses, including Sprout Organic Foods Inc., a baby food maker. North Castle partnered with venture capital firm Circle Up Growth Fund, which also invested in the transaction. In July, VMG Partners, the San Francisco private equity firm that sold better-for-you snack brand Pirate’s Booty in 2013 to B&G Foods Inc. (NYSE: BGS), sold plant-based protein supplement Vega to strategic buyer WhiteWave Foods Co. (NYSE: WWAV) for $550 million. The deal gives WhiteWave another line to add to its healthy holdings, which include Silk-brand soy milk, Horizon Organic and Earthbound Farms. The price indicates WhiteWave paid a 20x Ebitda multiple for Vega, according to research from investment bank Stephens. And a multiple that high indicates dealmaker appetite for the space isn’t waning any time soon. One deal that attracted a lot of attention in 2014 was Hormel Foods Corp.’s (NYSE: HRL) acquisition of CytoSport Holdings Inc., the maker of protein supplement brand Muscle Milk. For Hormel, that transaction came as part of an effort to diversify food offerings through acquisitions. Before Muscle Milk, Hormel picked up Skippy peanut butter, a deal which won the business Mergers & Acquisitions’ 2013 M&A Mid-Market Deal of the Year Award. Consumer products business Helen of Troy Ltd. also used an acquisition strategy to move into the VMS space. The El Paso, Texas-based business paid $195 million for nutritional supplement business Healthy Directions LLC back in 2014. Dealmakers have been showing interest in the space for years, often as part of a broader, better-for-you investment thesis. North Castle, for example, also invested in gym chain Barry’s Bootcamp in July. The healthy living industry as a whole is growing. “VMS definitely fits into an overall, balanced lifestyle,” Nolan says. For more on VMS deals, see Vitamins, Minerals and Supplements Feed Consumers and Deals. 
