FCB 금융학회

M&A Pitch Book Project – Global

Heinz & Herbalife Nutrition M&A Pitch Book

Project Background

This pitchbook proposes the acquisition of Herbalife Nutrition to Heinz. Due to the recent slowdown in Food&Beverage (F&B) industry, Heinz needs to find the target company capable of the external growth(business expansion) and profitable growth(sales growth) to realize the sustainable growth. That is, the priority goal is to find the cost reduction and revenue innovation within Heinz’s core business domain where it has been developing its major competitiveness. Thus, the target firm’s business should be able to blend with Heinz’s core business while opening up new market opportunities. As far as these conditions are concerned, Herbalife is the best fit that allows Heinz to extend the main business in a cost-efficient manner.

  • Part 1. Investment Rationale
  • Part 2. Target Company Overview: Operation
  • Part 3. Target Company Overview: Financial
  • Part 4. Target Industry Overview: Nutrition and Supplements Market
  • Part 5. Valuation Overview

Project Leaders

Cho, Seung Ho

Finance Project Member
FCB Finance Institute

Concentration Area: M&A Advisory

Sung, Chang Hyun

Finance Project Member
FCB Finance Institute

Concentration Area: M&A Advisory

Park, Ye Seul

Finance Project Member
FCB Finance Institute

Concentration Area: M&A Advisory

Finance Project Portfolio

Part 1. Investment Rationale

Heinz’s acquisition of Herbalife Nutrition can offer significant cost reductions for both Heinz and Herbalife. It reduces fixed costs, SG&A expenses, and Cost of Goods Sold. On the other side, Heinz and Herbalife should produce premium food products in order to survive in the F&B industry down the road. That is, the acquisition provides the revenue synergies allowing them to raise the quantity and price of the products. Herbalife is leveraging the business, expanding the product lines and technological infrastructure more than ever while Heinz needs the product diversification that enables Heinz to generate premium quality products across the world. Thus, Heinz and Herbalife can have revenue synergies from win-win collaboration.

SG&A stands for Selling, General & Administrative Expense, and it includes the costs to sell and deliver products or services, in addition to the costs to manage the company.

Part2. Target Company Overview: Operation

Herbalife operates as a global nutrition supplements company. As a global nutrition company, Herbalife has accumulated its market power within the weight management supplements market. Herbalife maintains the dominan market share in the global nutrition food market (40.1% of the market).

Currently, 41.4% of Herbalife’s sales come from Asia (including China), and the rest are from North America, Europe, and other region. The sales portion of weight management products and targeted nutrition products occupy 69.9% and 28.1%, respectively. Herbalife’s most products are distributed by “Sales Leader” who has established Herbalife’s unique sales infrastructure over the world.

Part3. Target Company Overview: Financial

Herbalife’s Sales increased 8.4% in LTM 2018 on year. It has been benefited from Direct Sales Model “Buyer to Seller”. Herbalife has a stable Net Working Capital via strong earning quality. Herbalife has sustainable Operating Cash Flow compared to peer companies.

With stable profitability margins such as OPM, EBITDA, NIM, it allow positive forecast. Short-term liquidity is solid within peer companies excluding inventory. Herbalife‘s convertible notes expire on August 2019, and it will be converted into equity potentially. Also, Herbalife has repurchased its shares in order to protect shareholder’s interest continuously.

Part4. Target Industry Overview: Nutrition and Supplements Market

Nutrition and Supplements industry is fast-growing segment in F&B industry, which is expected to USD 811.8 billion in 2021 with 8% of CAGR. This dramatic growth rate is occurred by two main reasons ; 1) Increase in consumer interest in healthy diet, 2) Concern about significant increase in healthcare costs. Therefore, companies with producing multi-segment products expands the market position in the nutrition and supplements industry. Moreover, cost reduction via creating online distribution channels and the firm which develops personalized diet plan to consumers are expected to obtain dominant market position in the industry.

Part5. Valuation Overview

Herbalife Nutrition is relatively undervalued compared to the peer group. The reasons are: 1) constant demand growth in nutrition/healthcare industry while Herbalife is the international market leader with 43% market share, 2) aggressive leveraging business along with 158 new products launched in 2018, and 3) innovative distribution infrastructure – Sales Leaders and Oracle ERP.

Peer groups in Trading comps share the benefits of nutrition market booms, but lack Herbalife’s unique sales and technology infrastructure.

The reasons that the transaction value is relatively low are mainly attributed to the fact that the target companies are private and the nutrition market growth was not as highly forecasted as currently is.
When it comes to DCF analysis, Herbalife’s current value is relatively undervalued. DCF EV/EBITDA ranges from 18.7x to 32.7x while the market EV/EBITDA is 12.8x. Therefore, the implied takeout price is $20,807millions at 20% premium price of $69.5.

Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company’s operating performance. Essentially, it’s a way to evaluate a company’s performance without having to factor in financing decisions, accounting decisions or tax environments.

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