Deal focus: Mr Vitamins gets deal-by-deal treatment

Chemist Warehouse became the dominant force in Australia's vitamins and health food industry through an aggressive discount-driven strategy. In contrast, the success of Mr Vitamins has been built on the breadth of its range and quality of its service: the Sydney-based retailer has just two stores, but its loyal local following over 25 years convinced Josh McKean that the growth prospects were strong.

"Chemist Warehouse has an annual turnover approaching A$1 billion ($757 million) in vitamins. We are not aiming to replicate that but we think there is room for another retail brand that could focus on vitamins and other natural health products," says McKean, an operational partner at Ironbridge Capital. "It has a great recurring revenue base. As part of the due diligence we completed a customer survey and asked what improvements could be made. The number one thing was opening new stores."

To pursue the opportunity, he teamed up with Trent Peterson - who has been focusing on deal-by-deal investments ever since Catalyst Investment Managers decided against raising a new fund - and experienced retail player Brett Blundy. They formed a single asset fund of A$29 million to purchase Mr Vitamins and a dedicated investment manager, the ownership of which is split equally between McKean, Peterson, Blundy and Ironbridge co-founder Greg Ruddock.

Working in tandem with Peter Barraket, CEO of Mr Vitamins, the plan is to roll out a network of 10-12 superstores, each one up to 300 square meters in size, and to more than double EBITDA over a 3-5 year period. At present, the company sells 10,000 stock-keeping units across 1,500 brands, generating approximately A$25 million in annual revenue.

Steps will also be taken to boost online business, with an eye on tapping into demand for vitamins in Asia. However, the Australian market alone for vitamins, diet and sports nutrition is worth A$3 billion and is expected to see annual growth in excess of 5% over the next five years.

Of the A$29 million investment, the investment manager committed one third and the remainder came from family offices and high net worth individuals with professional services backgrounds. "There are a lot of high net worth individuals and people with self-managed superannuation funds who want to get access to interesting investments," McKean notes, adding that there was about A$60 million in demand for the Mr Vitamins deal.

Having Blundy come in as an anchor investor - he provided 25% of the fund corpus - helped stimulate interest from other parties. But the value-add is also operational via Blundy's existing network and investments. Mr Vitamins has already installed Ray Itaoui, an alumnus of the Blundy retail empire, as chairman and been given access to a CFO, a property specialist who will work on a part-time basis while the business is still small.

"Mr Vitamins typically wouldn't be able to tap into these resources," says McKean.

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• Topics
• Australasia
• Consumer
• Healthcare
• Buyouts
• Australia
• Ironbridge Capital
• Catalyst Investment Managers