[NBTY Inc.] acts on its plan to offset increasing private label competition in the dietary supplement space by expanding its sports nutrition portfolio with the acquisition of nutritional bar manufacturer Balance Bar Co.

The acquisition from private equity firm Brynwood Partners announced Nov. 26 brings NBTY four product lines under the Balance Bar brand, which the Ronkonkoma, N.Y., firm claims is one of the most recognizable and leading brands in the nutrition bar category.

The deal also increases NBTY’s already sizable presence in the growing nutrition bar category and provides the firm access to loyal Balance Bar customers, the firms say. While the firms did not announce terms of the deal, NBTY will pay $78 million for Balance Bar, according to Securities and Exchange Commission filings. This is roughly 2.5 times what Brynwood paid Kraft Foods Inc. for the Valhalla, N.Y., company in 2009.

The products NBTY gains in the deal include the Original Balance Bar, which promises balanced nutrition with 40% of calories from carbohydrates, 30% from protein and 30% from dietary fat; Gold, which has “three indulgent layers”; the “trail mix inspired” Bare Balance Bar which touts whole grains; and the 100-calorie, on-the-go-sized Minis line. All currently are marketed in the sports and active nutrition space as a healthy snack food that offers balanced nutrition.

The Balance Bar products fit nicely in NBTY’s existing portfolio of sports nutrition bars, which include MET-Rx and Pure Protein, popular among bodybuilders. NBTY also markets Good n’ Natural protein bars, which also is geared to athletes but has a wider appeal as a nutritious snack.

“Balance Bar is going to give us a great platform to enter what we would call, the broader everyday nutrition segment, which is about two-thirds-plus of the bar market in total. So we are really excited to have it on board.” – NBTY CEO Jeffery Nagel

Like Good n’ Natural, Balance Bars has a wider appeal than MET-Rx and Pure Protein beyond just sports enthusiasts to health-conscious snackers, a demographic that NBTY CEO Jeffery Nagel said last December the firm would court with prioritized development of “active nutrition” products.

“We’ve always had a strong franchise in the protein bar segment through MET-Rx and Pure Protein brands, but Balance Bar is going to give us a great platform to enter what we would call, the broader everyday nutrition segment, which is about two-thirds-plus of the bar market in total. So we are really excited to have it on board,” Nagel said Nov. 28 during the firm’s fourth quarter earnings call with analysts.

NBTY estimates the nutrition bar category is worth about $1 billion in the U.S currently and is growing.

“We are seeing an increased appetite for these types of products,” NBTY spokeswoman Andrea Staub said.

The Natural Marketing Institute recently reported that since 2007 consumers increasingly want bars as a delivery format ([A#05121015009]).

NBTY hopes to capitalize on consumers’ growing interest in bars by expanding distribution of Balance Bar products in the coming months, Staub said.

She said the firm plans to distribute Balance Bars via its retail chains, which include Vitamin World, Holland & Barrett and, in the U.K., GNC. NBTY also will seek to expand distribution “anywhere we currently have distribution,” including drug, mass, club and convenience stores, Staub added.

“We are committed to growing and investing in the Balance Bar brand and maintaining the high quality and the great taste of the bars,” Nagel confirmed during the analyst call.

The bar’s taste likely is one reason that Balance Bar has such “a strong and loyal consumer following,” Greenwich, Conn.-based Brynwood notes in the same-day release. This will further bolster NBTY’s consumer base.

While the acquisition likely offers potential synergistic collaborations with NBTY’s other bar brands, Nagel declined to comment on potential plans.

Balance Bar marks the second acquisition since Nagel became CEO after The Carlyle Group acquired NBTY in October 2010 Also see "Carlyle Group's $3.8B Bid For NBTY Could Face Competition" - Pink Sheet, 19 July, 2010.. In March 2011 the firm paid $3.1 million for Vitarich Laboratories, expanding its in-house production of liquid nutritional products in addition to adding private-label product capacity Also see "Vitarich Acquisition Expands NBTY’s Liquid Nutritionals Business" - Pink Sheet, 28 March, 2011.).

Additionally, in October NBTY sold its Le Naturiste Canadian retail business to Montreal entrepreneurs Melanie Kau and Stephen Rosenhek for an undisclosed sum, according to a release. The chain has 80 stores in Quebec and New Brunswick with 300 employees, and a warehouse and headquarters in Montreal.

During NBTY’s fiscal 2012 fourth-quarter earnings call Nov. 28, Nagel said NBTY sold Le Naturiste to “focus more on driving growth from the Vitamin World business where we see a ton of opportunity.”

The divestment follows NBTY’s August exit from U.K. retail subsidiary Julian Graves Ltd., which it moved into administration with intent to sell after the health food seller experienced continuing operating losses Also see "NBTY Moves On From U.K. Health Food Retail Misadventure" - Pink Sheet, 13 August, 2012..

Sports Counter Private Label Competition

The Balance Bar deal advances NBTY’s previously announced plan to expand in the sports nutrition category as a way to counter-balance increasing competition from other private label manufacturers Also see "NBTY Pegs Sports Nutrition To Help Offset Private Label Slump" - Pink Sheet, 5 December, 2011..

The firm’s domestic branded sports nutrition products, including Pure Protein and Body Fortress, contributed “strongly” to NBTY’s overall wholesale segment’s sales during its fiscal year, which ended Sept. 30, Nagel said during the earnings call.

Pure Protein, Body Fortress and other branded wholesale products attributed $97.2 million to the net sales of NBTY’s wholesale segment sales, which increased 3.5% to $1.83 billion in fiscal 2012 from fiscal 2011, according to a Securities and Exchange Commission filing.

Nagel said Nielsen’s “expanded all outlets combined” data – U.S. grocery stores with at least $2 million and drug stores with at least $1 million annual sales, mass merchandisers, Walmart and club, dollar and military stores – show the diet and sports nutrition category during the fourth quarter grew 15.7%. NBTY’s sales in the category grew 12.9% during the July-September period.

Growth from branded wholesale products, including sports nutrition, was “partially offset by the ongoing volume and pricing pressure in the private label business we’ve talked about before, although this impact was somewhat lessened in the fourth quarter,” Nagel said.

Pricing pressure in the private label business contributed to the year-over-year decline of the firm’s gross margin to 46.4% in fiscal 2012 from 46.9% in fiscal 2011.

“While we continue to view the private label business as an important valuable service for key accounts, we are going to continue focusing on providing the service only to select customers and we continue to pursue operating efficiencies that will enable us to viably offer this service. But as we discussed before, we are making sure that we [have] acceptable margins from those key accounts on the products we supply,” Nagel said.

NBTY’s other businesses are growing steadily, according to the firm’s earnings report. Overall, total sales for the quarter were up 3.2% from the year-ago quarter to $749 million and full-year sales increased 4.7% to $3 billion.

Nagel said Nielsen expanded all outlets combined data show demand for vitamins, minerals and herbal supplements grew 5% in the quarter and 4.3% for the full year, and NBTY sales in the segment mostly kept pace. During the quarter, NBTY sales of vitamins, minerals and herbals increased 4.8% in the same channels and 19.1% for the year.

NBTY Acquires Balance Bar To Expand In Sports Category

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