NutriSystem Acquired by Tivity Health – Then There Were Three

Dec. 10, 2018

Tivity Health, a leading provider of fitness and health improvement programs, and Nutrisystem, Inc. today announced that they have entered into a definitive agreement under which Tivity Health will acquire all of the outstanding shares of Nutrisystem for a combination of cash and stock. Under the terms of the agreement,  Nutrisystem shareholders will receive $38.75 per share in cash and 0.2141 Tivity Health shares for each share of Nutrisystem common stock. The transaction values Nutrisystem at an enterprise value of $1.3 billion and an equity value of $1.4 billion, or approximately $47.00 per share.

"The combined company will be unique in offering, at scale, an integrated portfolio of fitness, nutrition and social engagement solutions to support overall health and wellness. Through this expanded portfolio, Tivity Health will be better positioned to address weight management – a major factor contributing to many chronic diseases. The diversification of Tivity Health's portfolio and increased scale will benefit all the company's stakeholders – including health plans, fitness partners, members and consumers – as these offerings support healthier lifestyles and can lower medical costs. Tens of millions of Americans are currently eligible for Tivity Health's SilverSneakers®, Prime® Fitness, WholeHealth Livingand flip50™ programs, and millions of people have lost weight with Nutrisystem's products, including Nutrisystem®, South Beach Diet® and DNA BodyBlueprint.

Based on the financial results for both companies for the 12 months ended September 30, 2018, pro forma revenue would have been approximately $1.3 billion, net income would have been approximately $135 million and adjusted EBITDA would have been approximately $223 million. NutriSystem is slated to post revenues of about $695 million for 2018.

"...This transaction will provide our shareholders with significant value and the opportunity to participate in the upside potential of the combined company through ownership of Tivity Health stock," said Dawn Zier, President and CEO of Nutrisystem. "Tivity Health and Nutrisystem share a common strategic vision, mission and culture, and we look forward to working with the Tivity Health team to take the combined organization to the next level."

Upon closing of the acquisition, Tivity Health expects to maintain all existing Nutrisystem brands, as well as Nutrisystem's Fort Washington, PA location. Additionally, Dawn Zier will become President and CEO of Tivity Health reporting to Tivity Health CEO Donato Tramuto. She will be responsible for Tivity Health's nutrition and fitness divisions and will join the company's Board of Directors.

The transaction is expected to close in the first quarter of 2019, subject to the approval of Nutrisystem shareholders, the receipt of regulatory approval and other customary closing conditions.

The complete press Release can be viewed here:

https://seekingalpha.com/pr/17352539-tivity-health-acquire-nutrisystem-1_3-billion-cash-stock

Marketdata Commentary

First off, who is Tivity health? We've never heard of them before and we bet that most of the general public never has either. We at Marketdata are wary of this deal, since history has proven that in the weight loss market, takeovers by larger entities never seems to work out. Witness the Slim-fast takeover by Unilever, where they ran the Slim-Fast brand into the ground and ultimately had to sell it. Witness Nestle's takeover of Jenny Craig, which they too abandoned due to lackluster results. Will this deal follow the same trend?

The deal looks good for Dawn Zier personally, but we're not so sure it's the best decision for NutriSystem. Will the brand maintain its stature and appeal, or will it be watered down under Tivity's larger healthcare umbrella? Also, acquisitions usually mean that some will get laid off at the acquired company to eliminate duplication of staff.

We do know one thing for sure, now there are only 3 public weight loss companies that report financial information via annual reports, 10Qs and 10Ks (Medifast, Weight Watchers, Herbalife). So, it just got harder for us analysts to estimate the size and growth rate of commercial diet companies. Now, NutriSystem financial data will likely be combined and buried within Tivity Health, giving us less transparency.

Our bottom line opinion - NutriSystem should have stayed independent.

 

 

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