Nestle to Buy Supplements Maker Atrium for $2.3 Billion

(Bloomberg) -- Nestle SA Chief Executive Officer Mark Schneider made his biggest acquisition yet, agreeing to buy Canadian dietary supplements maker Atrium Innovations for $2.3 billion in a bid for growth beyond stagnating mainstream food brands.

The world's biggest food company is acquiring Westmount, Quebec-based Atrium from an investor group led by Permira Funds, Nestle said in a statement Tuesday. The Swiss owner of Nespresso and Lean Cuisine is paying cash for the Garden of Life supplement maker, whose 2017 sales are expected to approach $700 million.

Schneider is trying to turn around the Vevey, Switzerland-based company by focusing on niche acquisitions in areas like healthy eating, hipster coffee, infant nutrition and pet care. The new CEO, who joined Nestle from German health-care company Fresenius SE, is under pressure to revamp the food giant after the weakest nine-month sales since the turn of the century.

The Atrium deal, which includes the assumption of an undisclosed amount of debt, is Nestle's biggest acquisition in medical nutrition since the company accelerated its push into health in 2006 by spending about $2.5 billion on businesses from Novartis AG that made food for hospital patients.

“This is a good start,” said Jon Cox, an analyst at Kepler Cheuvreux in Zurich. “Nestle still has firepower to do all other deals it has been linked with. But I wouldn't be surprised to see more under-the-radar stuff rather than the big bang.”

The deal, expected to close in the first quarter, will add to earnings growth immediately, Nestle Health Science CEO Greg Behar said in a call with journalists. He added that the valuation of the deal is lower than what most assets in the consumer over-the-counter industry are going for.

‘A Good Size'

“It's a good size and digestible,” he said, adding that 80 percent of Atrium's sales come from the U.S. Nestle plans to boost distribution in the U.S. and expand Atrium abroad, he added.

Investors have speculated Nestle might buy the consumer health units of Pfizer Inc. or Merck KGaA, or possibly organic food maker Hain Celestial Group Inc., Cox said.

“We continue to be open, but I'm not going to comment on the other stuff that's out there,” Behar said.

Nestle has been investing heavily in its health-science unit since 2011, trying to develop food-related products to prevent ailments such as obesity, metabolic problems and Alzheimer's disease. Behar said in 2015 that Nestle Health Science could eventually achieve sales of 10 billion Swiss francs ($10.1 billion).

Atrium, founded in 1999, will add probiotics, plant-based protein nutrition, meal replacements and multivitamins to the Swiss company's portfolio. The Canadian company, which has 1,400 employees, sells its supplements in health-food stores in the U.S. and selected other markets. Its brands include Wobenzym, Douglas Laboratories, Genestra Brands, Orthica, AOV, Minami, Klean Athlete, Pharmax and Trophic.

The deal for Atrium follows the Swiss company's purchase of vegetarian-burrito maker Sweet Earth and Blue Bottle Coffee in September, after a June investment in meal-delivery startup Freshly. Activist investor Dan Loeb, who disclosed a stake in Nestle earlier this year, has said the maker of Cailler chocolate and Maggi seasonings fell behind competitors in adapting to a lower-growth environment amid changing consumer habits.

Permira bought 75 percent of Atrium in 2014 in a deal that valued the entire company, including debt, at about $1.1 billion. Existing shareholders Fonds de Solidarite FTQ and Caisse de Depot et Placement du Quebec held the rest of its stock.

--With assistance from Mara Bernath

To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net.

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John J. Edwards III

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