Thursday morning’s announcement from Glanbia that it will spend $350m to acquire the SlimFast brand and associated business could hardly have been met with less fanfare by financial markets. Shares in Glanbia have remained steady all day and were trading at 1% back towards close of business on Thursday at €14.12.

This is a large deal for Glanbia which is valued at €4.2bn. This is the largest acquisition that Glanbia has ever made, eclipsing previous large deals for Optimum Nutrition ($315m), BSN ($145m) and Isopure ($153m) which transformed Glanbia into the market leader it is today in the performance nutrition category.

So why are markets so muted after such a large outlay by Glanbia?

It could be that the SlimFast acquisition has the hallmarks of a risky move for Glanbia.

With a $350m price tag, the SlimFast business has commanded an earnings (EBITDA) multiple of 14.6 times, meaning this deal has not come cheap for Glanbia by any measure.

Aside from being the largest deal in Glanbia’s history, it is also the most unusual acquisition the company has made in terms of how far removed this business is from Glanbia’s dairy processing history.

Taking a gamble

Glanbia is a company with roots in processing milk into fat-filled dairy products like butter and cheese. While it has moved into more recently into health and wellness and prior to that sports nutrition, snapping up a weight loss business such as SlimFast is a little bit like betting against itself.

The move is further questionable, considering that dairy fats are very much back on trend in the developed world and once more perceived as healthy, most obviously illustrated in record butter prices in both Europe and the US over recent years.

On top of this, SlimFast is an old brand. More than 40 years old in fact.

How much relevance a weight loss and dieting brand like SlimFast, which evokes memories of sugary diet shakes and drinks, has with the modern consumer is questionable.

However, the most glaring indicator of the risks in this deal is the historical decline in the financial performance of the SlimFast business.

Unilever and SlimFast

In 2000, the consumer goods conglomerate Unilever paid $2.3bn, or more than 18 times its earnings, to buy the SlimFast business.

At the time, SlimFast was generating sales of $611m and earnings (EBITDA) of $125m, meaning the profit margin in the business was a very robust 20%.

Almost immediately, things started to go wrong for SlimFast and Unilever as dieters moved away from sugary drinks and shakes. By 2005, Unilever had written down the value of its investment in SlimFast by a massive €850m as sales and profits continued to deteriorate. By 2014, Unilever sold the business for an undisclosed sum to Kainos Capital, a Texas-based private equity firm, which has now in turn sold the business to Glanbia.

The waning popularity of the SlimFast brand is best illustrated in the $350m price tag paid by Glanbia for the business, which is just 15% of the $2.3bn paid by Unilever less than 20 years ago.

Glanbia’s announcement also included figures for the 2017 financial performance of the SlimFast business.

This is the first time in almost two decades financial figures for SlimFast have been made public and they make for bleak reading.

SlimFast is the seventh and largest acquisition that Glanbia has added to its performance nutrition portfolio over the last 10 years

Since 2000, SlimFast sales have fallen by almost two thirds (-65%) to stand at $212m in 2017. The profitability of the business has fared even worse in that time with earnings plunging more than 80% since 2000 to just $24m last year, while earnings margins have dropped from 20% to just over 11%.

While an 11% profit margin is nothing to be sneezed at, it’s still weaker than the 15% profit margin Glanbia’s performance nutrition division delivered in 2017.

Glanbia will look for synergies in the deal but it’s still difficult to see how SlimFast can make a significant contribution to the bottom line in Glanbia’s performance nutrition division. Perhaps they see it as a route to market for some of their performance nutrition brands?

SlimFast is the seventh and largest acquisition that Glanbia has added to its performance nutrition portfolio over the last 10 years and brings the total spend on performance nutrition deals to a very weighty $1.4bn since 2008.

Glanbia’s strategy has undoubtedly been to buy into brands, which has given the group a 13% share of the $10bn global performance nutrition market. The group is clearly committed to its branded strategy and sees itself as a consolidator in the sector.

Over the last decade we’ve seen how the performance nutrition business has been the engine that has driven growth year after year in Glanbia. It will be interesting to see if the latest punt on an ailing SlimFast brand can fuel further growth for the global nutrition company.

The challenge for Glanbia will be reviving the ailing brand from the 80s. Its two most recent owners struggled to do so, so what can Glanbia do different?

No matter what way you look at it is a bit of a bet for Glanbia.