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Case Study Amerifit Brands
In the summer of 2003, Cyrill Siewert and Joe Rhodes began discussing a partnership to pursue a build-up in consumer healthcare. At the time, Joe was a Partner at Charterhouse Group in charge of Consumer Products investing. Cyrill described the prospective enterprise as a "brand warehouse" of products that would address chronic, non-life threatening conditions of aging. The resources of the enterprise would be focused on developing sales and marketing excellence, modeled after Cyrill's experience at Colgate Palmolive and Pepsico.
Cyrill and Joe had known each other for several years through their mutual interest and participation in the nutrition industry and had developed a strong respect and friendship.
To begin the project, Cyrill and Joe literally sat around a conference table creating a list of the brands and companies that would fit their criteria, and then rated them based upon brand strength and size. And wouldn't you know that the Company that had been at the top of the list (of hundreds) due to its meeting key criteria, and coincidentally because it's name alphabetically started with the letter "A", turned up for sale - Amerifit Nutrition.
Amerifit was not an easy purchase due to its significant sales concentration in a single brand, Estroven (the leading all natural brand of products addressing the condition of menopause), which was not growing and made financing the transaction difficult. In addition, Amerifit’s then CEO had a desire to do other things, leaving a key hole in its management structure. However, Cyrill and Joe had a perspective that Estroven’s size and importance to the retail trade, plus Amerifit's strong back office and sales infrastructure, made Amerifit a strong platform for additions of other brands. The addition of other growing brands that fit the strategic thesis would diversify the business, increase its scale and provide growth. Further, the mass-market brand management business model is very scaleable and significant profit enhancement would occur with greater scale. And of course, Cyrill would be able to fill the vacated CEO role.
By the Spring of 2004, they had bought the business and Cyrill was the new CEO of Amerifit Nutrition. In addition to equity from Charterhouse and management's rollover investment, Capital Source provided a senior loan facility for the transaction and Oaktree Capital provided mezzanine financing. To better reflect what they were trying to achieve, Amerifit's name was changed to Amerifit Brands.
By the Fall of 2004, Amerifit had made its first add-on acquisition of the Women’s Health Products division (WHPD) of Polymedica Corporation. Polymedica’s primary business was selling mail order diabetic supplies and the WHPD was non-strategic and small in comparison to the rest of its business. WHPD was principally comprised of a women's urinary tract OTC brand called AZO, which was a strong strategic fit with Estroven due to its women’s health focus and similar mass market sales channel (e.g. Walmart, Walgreens, CVS etc). In addition, because AZO had not been a focus for Polymedica, the brand was under-developed and had significant upside sales potential. The brand was purchased and Amerifit was able to incorporate its operations with minimal overhead additions making the purchase very accretive. With the completion of this acquisition, Estroven went from approximately 80% of Amerifit's sales, to approximately 50%.
Amerifit's strong sales capability was able to significantly increase the distribution of AZO and Amerifit’s marketing skill allowed for the extension of the brand into new products and closely adjacent categories. AZO went from #2 in the UTI category, to #1, leapfrogging Johnson & Johnson's Uristat brand. By 2009 (the last year of Charterhouse’s ownership), AZO had more than 50% share of the UTI category, up from the low 20’s when purchased, and AZO's overall sales had approximately doubled.
In the Spring of 2005, Joe met with a former executive of ConAgra and discussed various brands that ConAgra might consider divesting. One of the brands mentioned was Culturelle, a small brand of highly efficacious probiotics that was orphaned in ConAgra’s trading division. Few people had heard of probiotics (good for you bacteria) at that time, but Cyrill and Joe had identified Culturelle as an attractive product and probiotics as a category with significant scientific validation that was primed to emerge. Working with the former executive's internal contacts, they were able to arrange a proprietary transaction outside of any process. Within a year, Danone began a $60 million advertising campaign for its new probiotic yogurt brand, Activia, which significantly increased consumer awareness of the benefits of probiotics. The probiotic category was off to the races and as doctors and media experts began to learn more about the subject, they became significant advocates. Amerifit did a great job of gaining distribution for the brand and investing in its marketing which allowed it to compete very effectively with giants like Procter & Gamble and Bayer who entered the category with their own offerings. In 2009, Culturelle was the #2 brand in this burgeoning category (category growth was 98% in 2009 in F/D/M channels) and its sales had approximately quadrupled from the time it was purchased by Amerifit.
All the while, Amerifit continued to significantly invest and improve the marketing of Estroven. And by 2009, the brand was once again growing and had remained very profitable. Just as imagined originally, Estroven had been a strong cash cow that allowed for investment in Amerifit's faster growing products and had provided the scale and relationships with mass retailers that strongly assisted Amerifit in gaining distribution for its other brands. Also, during these years the management team had been significantly strengthened through additions and natural attrition, a new first-class warehouse and logistics facility had been put in place, Amerifit’s MIS systems had been upgraded to a best in class Oracle system and it developed a strong GMP compliance program - all contributing to strengthen the platform. From a business model standpoint, Amerifit was purposeful in outsourcing the production of all its products, so there was very low capital expenditures required allowing for significant marketing investment, free cash flow and de-leveraging.
Amerifit had truly become a strategically integrated brand warehouse consistent with the original vision. All its brands were either #1 or #2 in their categories and were growing supported by the strong demographic trends of natural wellness and proactive self-care. Topline growth was approximately 15% on a blended basis and the business had EBITDA margins of approximately 30%. Overall during Charterhouse’s ownership EBITDA grew by approximately 250%, to $25 million.
In 2009, Charterhouse determined that it wanted a realization on its investment and Deutche Bank was hired to run a sale process. In January 2010, Martek Biosciences (ticker symbol: MATK), a maker of nutrition products including DHA for infant formula, announced that it was buying Amerifit for $200 million. In addition to its attractive portfolio of products, Martek stated that it was buying Amerifit for its sales and marketing capabilities to help commercialize Martek’s portfolio of nutritional intellectual property and products at mass retail. All of Amerifit's employees were retained as they were highly valued for their expertise and capabilities that were unique to Martek.