Consumer

Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

Mark Schneider, the newish chief executive officer of Nestle SA, has wasted no time reshaping the fusty food group.

On Tuesday, the company announced its $2.3 billion purchase of Atrium Innovations, a maker of organic and natural supplements, from an investor group led by Permira Funds. The terms look a bit pricey.

Schneider has done quite a bit of M&A in his short time at the company, and that can be a warning sign for investors. But at least the modest size of this deal, and his willingness to stick close to Nestle's existing operations, should prevent investors being left with a bad taste in their mouths from swallowing this supposedly health-inducing medicine.

Keeping the Ulf from the Door
Nestle's acquisitions since Schneider took up the job of CEO
Source: Bloomberg
Announced date; Nestle took minority stake in Freshly

This is straight out of the playbook for chasing the millennial dollar, as the big consumer groups try to eke out growth in stagnant markets.

Buying Atrium gives Nestle access to supplements such as probiotics, plant-based proteins and meal replacements, as well as multivitamins, increasingly in demand as consumers seek to safeguard their health and reject mainstream brands. 

Revenue Wanted
Big consumer companies have been buying their way to growth
Source: Bloomberg

That's in line with the strategic blueprint that Schneider set out at the end of September. There, he pledged to look for opportunities in consumer healthcare -- read more-profitable nutritional supplements rather than low-margin vitamins -- to augment the company's core areas of coffee, pet care, infant formula and bottled water.

But like other consumer goods groups who have bought their way into the latest fad, it has had to pay up.

The price is 3.3 times Atrium's 2017 sales of $700 million. That is less than the 4.76 times that Reckitt Benckiser Group Plc paid for Mead Johnson, but just above the 3 times that Danone SA paid for WhiteWave, according to Bloomberg data.

Still, Nestle can afford it. Net debt at the end of this year is expected to be less than earnings before interest, tax, depreciation and amortization.

Even after a planned $21 billion stock buyback, the net debt to Ebitda ratio will only rise to 1.5 times in 2020 -- and that's before any potential disposals. Then there's Nestle SA's stake in L'Oreal SA. That alone is worth about $28 billion.

So buying Atrium doesn't preclude further purchases. If Nestle still wanted to pursue Hain Celestial Group Inc. -- something Bloomberg News said recently it was considering -- it could.

Schneider has a reputation as a deal junkie and the purchases in his first year in the job certainly live up to that. As well as Atrium he's picked up a smaller artisan coffee group and niche food businesses.

That leaves investors with a nervous disposition. At least this herbal remedy should calm this a little. It's of a manageable size and is close enough to Nestle's core areas to prevent too many side effects. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andrea Felsted in London at afelsted@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net