case study

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.

The platform investment of 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 did not wish to remain with the business post-transaction, leaving a key hole in its management structure. However, 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 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 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 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 with ConAgra. 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 good job of gaining distribution for the brand and investing in its marketing which allowed it to compete very effectively with the likes of 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.

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 built, 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 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 300%, to $25 million.

In 2009, the investors determined that they wanted a realization on their 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.