Private equity firms are expected to ramp up investments in the healthy living sector in the near future, according to a report from mid-market investment bank Baird.
A $124 billion industry, the sector is comprised of a variety of businesses including fitness centers, sports apparel and equipment, natural and organic food and nutritional vitamins and supplements, according to Baird.
“It’s a broad category, but we are finding a significant amount of private equity and strategic interest in the various assets that are either available today or probably will be available in the next 18 months,” Baird director Kurt Roth told Private Equity International.
The US natural and organic food market grew at an average rate of 12.4 percent annually between 2000 and 2010, according to Baird. The $39 billion sector is projected to be robust through 2017, with revenue expected to increase at an average rate of 6.6 percent.
“We’ve been active with a number of different beverage companies over the years and we’ll continue to stay focused on the functional beverage and [nutritional] bar category going forward,” Roth said, adding that Baird is forecasting “explosive growth” in select vitamin and supplement businesses with “direct-to-consumer” infomercial or mail-based marketing strategies.
Valuation multiples for strong businesses in industries such as fitness centers, meanwhile, should fall between 8x and 10x, Roth said, though Baird does expect select high-growth companies to achieve valuations in excess of 10x.
A number of private equity firms are already invested in the space, including Oak Hill Capital Partners, which invested in natural food chain Earthfare last month; Apollo Global Management, which purchased Sprouts Farmers Market in February 2011 and Trilantic Capital Partners, which purchased footwear and fitness accessories company Implus last November.
In 2010, Baird Private Equity invested in nutritional supplement and personal care company New Vitality.
Baird estimates the recreation and fitness sector to be roughly a $40 billion industry, with nutrition accounting for another $84 billion.
“We think the consumer is the same consumer for many of these services and products,” Roth said.