NeutraHealth, which began trading on London's alternative investment market (AIM) in February, will pay £16.1 million (€23.2m) for the Birmingham-based company that sells its products to dieticians and natural health practitioners.
The deal marks the first move to consolidate the many small players in the UK nutraceutical industry, a sector that has seen rapid growth over the last 10 years yet has so far attracted little interest from the financial market.
"It is generally speaking a very healthy industry with strong growth. There has been no need for companies to get into doing deals and thus far the financial market has not gone into the sector," explained Martin Gatto, chairman of NeutraHealth.
"But there are companies in any market that are thinking how they can take their business onto the next stage. It is a case of finding companies at a crossroads in their development," he told NutraIngredients.com.
The UK nutraceutical sector grew by 110 per cent between 1998 and 2003, according to Key Note, and is expected to continue growing at a rate of 10-15 per cent between 2005 and 2007. It is believed that 43 per cent of British adults use VMS products, the majority of whom use them on a daily basis, and this is likely to grow further as the population ages and becomes further concerned by health.
The NeutraHealth team, made up of a number of high profile UK businessmen, has been talking to the BioCare owners for the last two years.
"John Stirling, the scientist behind the range, is particularly talented and the business is considered the market leader among practitioners," said Gatto, credited with the successful turnaround of companies like British Energy, Midland Electricity and Somerfield.
With an adjusted operating profit of £2.1 million in 2004, and a 10.5 per cent sales growth over 2003 to reach £7.5 million in turnover last year, BioCare fits the profile of companies being targeted by Neutrahealth.
"We are not looking to bail out companies in financial difficulty, nor are we interested in start-ups. We are looking for companies with an established nature, seeing turnover of up to £15 million, and profitable," added Gatto.
BioCare currently develops and sells more than 170 products including vitamins, minerals, probiotics, fish oils and other supplements to general practitioners and healthcare specialists.
NeutraHealth says the deal will create opportunities for BioCare to develop new products, improve its marketing and increase exports.
Owners John and Sharon Stirling will continue to have a large interest in the business, with John holding onto his product development role.
"For a lot of SMEs, there comes a point when the original skills that create a business start to get diverted. I don't think John is too keen on the day-to-day running of the business but is still very excited about developing new products," explained Gatto.
"We have retail connections and while the BioCare range will continue to be sold only to practitioners, there is no reason why John could not develop a new range for the retail channel," he added.
NeutraHealth's next acquisition, expected in the coming 12 months, is likely to be a business with a different sales channel that would give the group the benefits of crossover distribution for its products.
The current acquisition will be largely funded by cash raised by a share placement - the company is planning to raise £10 million in equity and the NeutraHealth directors will invest a further £335,000 at the share placing price in addition to the £715,000 invested at the original admission to AIM in February.
Future acquisitions will likely include more debt, said Gatto.
Today's deal constitutes a reverse takeover and is therefore still subject to shareholder approval.