Supplement Industry Investment Continues On Swander Pace Contract Manufacturing Move

Swander Pace expands Captek’s operations less than two years after acquiring the firm and seven months after investing in a protein supplement manufacturer as one of numerous private equity firms active in the nutritional products space.

Private equity activity in the nutritional products industry continues as Swander Pace Capital’s Captek Softgel International Inc. business acquires another contract manufacturer, J+D Labs Pharma Manufacturing Inc.

Swander Pace expands Captek’s operations less than two years after acquiring the Cerritos. Calif., firm, which makes vitamin, mineral and supplement softgels for more than 200 brands in 20 countries, in an investment that comes seven months after investing in a plant-based protein product firm.

Swander Pace isn’t alone among private equity firms already buying into or selling ownership or stakes in vitamin, mineral and supplement manufacturers, and those investors should get ready for more competition for their acquisition targets in the space as well as for more potential buyers for assets they’re selling.

“You look at any consumer-branded private equity business and they either have a portfolio holding or are actively looking for a portfolio holding in health and wellness or healthy living or more specifically in the vitamin, mineral and supplement space,” said Travis Conway, managing director at SDR Ventures Inc., which consults with privately held businesses on acquisitions and investments.

When investors look at the nutritional products space, says L.E.K. Consulting research Alex Wood, they’re seeing opportunities to invest in companies with potential to rise to the top of and become a dominant business in still largely segmented product categories.

“Companies recognize that there’s still segmentation,” Wood said, adding that supplement manufacturing “is a pretty interesting investment category when you compare it to food and beverage overall, which is a much slower growing category.”

J+D Labs makes more than 1,000 unique nutraceutical formulations in the US, recently making more than 250 NutraStock brand bulk stock supplements available to its marketing and retail customers, according to Swander Pace’s Aug. 4 release announcing the deal.

The merged company will continue manufacturing operations both in Captek’s headquarters and at J+D Labs’ Vista, Calif., facility. Products for both firms’ existing customers as well as for additional contracts Captek lands could be manufactured at either site, which combined include more than 300,000 square feet of manufacturing, warehousing, and analytical testing labs, Swander Pace says.

The firm made its first 2017 move in the space in January by completing its investment in Reliance Holdings Inc., manufacturer and marketer of PlantFusion plant-based protein products available in the natural store channel, through its Branch Brook Holdings partnership with United Natural Foods Inc. and Jefferson Capital Partners

A year earlier, Swander Pace, with offices in Bedminster, N.J., San Francisco, and Toronto, acquired health and wellness product manufacturer and marketer [Swanson Health Products Inc.], and a month before that deal it acquired Captek from Prairie Capital and Skyline Global Partners in December. (Also see "Swanson Health Sale Could Lead Private Equity Spike In Supplement Space" - HBW Insight, 26 Jan, 2016.)I

It has invested and sold its stakes in Renew Life Holdings Corp., owner of probiotics developer [ReNew Life Formulas Inc.], and in Santa Cruz Nutritionals Inc. (Also see "Clorox Pays $290M To Digest Entry Into Probiotics With Renew Life" - HBW Insight, 5 May, 2016.)

More recent private equity activity in the supplement manufacturing space was Carlyle Group L.P.’s sale of its controlling interest in Nature's Bounty Co., formerly [NBTY Inc.], to Kohlberg Kravis Roberts & Co. L.P. (Also see "KKR Steers Nature's Bounty With Carlyle In Back Seat After Seven-Year Ride" - HBW Insight, 24 Jul, 2017.)

Targets Like ‘Fish In A Barrel’

Product categories such as sports nutrition and healthy aging are growing faster than most and are likely to stand out to investors, but product types and companies across the space are part of an industry with an attractive overall growth rate and a strong outlook. Growing consumer interest in self-care remains a key driver for current and future growth.

“We continue to see this idea of a more aware and active consumer who wants to invest in their own health and wellness,” Conway said from SDR Ventures’ headquarters in Greenwood Village, Colo.

“We’re seeing this convergence of healthy living and that consumer-driven mentality showing tremendous pickup for a lot of categories, healthy aging being one of them,” he added.

SDR Ventures projects a 12% compound annual growth rate through 2020 for healthy aging supplements, a category Conway noted as an example of the market investors see. “At 12% CAGR, all you need to do is find a winner in a category to outpace the category,” he said.

“When you’re shooting fish in a barrel and all the fish are growing at 12% CAGR, chances are you’re going to get a pretty good outcome.”

At L.E.K., Wood sees the supplement market attractive for investing due to the “fundamentals” of a growing consumer base as not only younger consumers are interested in supplementing their diets with nutritionals, but older consumers also account for an “especially important” target market.

Another fundamental of the market’s strong outlook is that more consumers, particularly “aging baby boomers” are turning to vitamins, minerals and supplements to help manage chronic conditions. With more of the population in the US and other developed countries living longer, the number of consumers with chronic conditions associated with aging also will grow, steadily increasing the market for those products.

Wood pointed out retailers are stocking more vitamins and supplements at drug, grocery, convenience and mass-merchandise stores, still another fundamental behind the industry’s growth. “Retailers stock what they know the customer wants,” he said.