Selling assets to focus on health

Nestlé uses M&A to drive business performance

Frank Petraglia

Frank Petraglia

Partner, Deal Advisory, KPMG US

+1 212-954-1074

Jeff Wilson

Jeff Wilson

Principal – Deal Advisory & Strategy, KPMG US

+1 757-572-3717

Under pressure from an activist investor to improve margins, Nestlé installed a new CEO, Mark Schneider, in 2017. He has been very vocal in his desire to bring about change in their portfolio and use M&A as a big driver of business performance. His first move was to sell the underperforming U.S. confectionery business, makers of such sweets as Raisinets and BabyRuth chocolate bars, followed by the divestiture of its skin health division for $10 billion. In 2019, Nestlé followed up by selling its U.S. ice cream business, which includes the Häagen-Dazs brand, to a joint venture with private equity firm PAI, which removed the business’s margin issues from the P&L, but allowed Nestlé to monetize the $4 billion purchase price.

In February, Nestlé also announced that it was divesting its U.S. water business, but a month later bought Essentia, a premium brand that pioneered ionized alkaline water. It also owns such premium water brands S. Pellegrino and Perrier. It also acquired Blue Bottle Coffee, a specialty coffee firm in the U.S. and Japan and a tiny business compared to the overall company’s revenues. The transactions underscored that the company is moving away from old school, unhealthy, or commoditized low-margin, low-growth product categories and moving towards healthier and premium options.

An example of this trend was the company’s acquisition in August, 2021 of parts of The Bountiful Company, maker of a variety of vitamin and supplement brands such Nature’s Bounty, Solgar, and Osteo Bi-Flex. Nestlé acquired the company for $5 billion from KKR, which it asked to retain Bountiful’s more prosaic consumer brands while Nestlé focused on the vitamin segment. “More people around the world are taking charge of their health, looking to vitamins, minerals, herbals and supplements to fill gaps or provide extra support,” said Nestlé Health Science CEO Greg Behar of the acquisition.

Another major purchase for the Swiss giant was Freshly, a direct-to-consumer mealkit service, in which it already owned a 20 percent stake. Nestlé has strived to expand its omnichannel offerings and the COVID-19 pandemic reinforced the company’s desire to double down on B2C home delivery. The $950 million purchase also helps the company expand its direct to consumer business in the U.S., where it has struggled to win market share for its Nespresso coffee pod subscription service.

The company is also expanding offerings in products such as plant-based meat. In reshaping the company, Schneider has been clear that one driver of the transformation is changing consumer tastes. “We are going through a significant change when it comes to how our consumers think about sustainability,” Schneider told the Swiss-based Institute for Management Development. “From our consumer research, we know that the younger, the better educated, the more affluent consumers are, the more important this topic becomes.”

The changed focus has produced a significant improvement in the company’s value, with the share price rising from $78.38 in September 2016 to $125.14 five years later.