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| Source: | LOHAS Weekly Newsletter |
| Published: | Monday, November 01, 1999 |
The transaction is expected to be earnings neutral for 4Q99 and accretive at about $.10/share in 1Q00, a forecast with which Natrol is “comfortable at this time,” says Elliott Balbert, the company’s president and CEO.
Natrol stock rose $.38/share on the news, closing Oct. 8 at $8.25/share. Also, based on the acquisition, Banc of America/ Montgomery Securities upgraded Natrol stock from Buy to Strong Buy and set a target price of $13/share.
At press time, the stock was trading at $8.62/share.
The acquisition gives Natrol access to the sports nutrition category and new distribution channels such as health clubs, according to Yudi Bahl, an analyst in the Minneapolis offices of U.S. Bancorp Piper Jaffray. In addition, Prolab’s international presence will give Natrol increased access to the global marketplace. “25% to 30% of Prolab’s sales are international, with significant presence in Canada and also in the U.K. and Germany,” Bahl says. “Natrol can use this base to leverage international sales of its own products.”
With sales expected to top $30 million this year, Prolab is one of the top second-tier companies in sports fitness and body-building products, a category that Natrol has long admired, according to Balbert.
“We had no way of getting into it, nothing new to bring to the party, so we were unable to break into that category of business and that channel of distribution,” Balbert says. “When we went public last year, we made it clear that the funds we were raising were for strategic alliances and complementary acquisitions. Prolab fit the bill perfectly.”
Sports nutrition products tend to sell to a younger demographic than dietary supplements, creating a whole new consumer target with long-term potential for natural products companies, Bahl says. “Sports nutrition targets an 18- to 35-year-old demographic instead of older groups. You can capture them at a much younger age and sell them vitamins and antioxidants later on. It’s a very important category for a lot of [natural products] companies and provides for another growth avenue.”
The U.S. sports-nutrition supplements industry has grown from $900 million in sales in 1994 to $1.53 billion in 1999, according to Nutrition Business Journal. It is expected to reach $1.62 billion in 2000. Global sales are expected to reach $7.2 billion in 2004.
Natrol plans a cobranding strategy with Prolab products but will preserve Prolab’s logo and packaging look, thereby keeping the products distinguishable. “Prolab is a respected brand and owns a franchise in the sports fitness world,” Balbert says.
Natrol executed a similar cobranding strategy with Laci LeBeau teas last year.
Natrol also plans to leave Prolab’s management and employee base intact. “They have an excellent, enthusiastic group of employees dedicated to building Prolab in their own right, which was one of the appeal factors for us in the acquisition,” Balbert says.
The acquisition also created “a tremendous number of synergies” that added to its appeal for Natrol, Balbert adds. While Prolab has some penetration in the natural products industry, it has no sales force or broker organization, areas in which Natrol is strong, Balbert says. Also, Prolab has been a marketer of dietary supplements but not a primary manufacturer, as is Natrol.
Finally, Prolab brings its 32,000-sq.-ft. CT distribution facility to the acquisition. Natrol may use it to warehouse its branded products and also will warehouse Prolab products in its existing West Coast distribution center. Plans for expansion of the CT facility are under consideration.