Tivity Health to Acquire Nutrisystem in $1.3 Billion Deal to Expand Integrated Health and Wellness Offerings

Recently, VCBeat (WeChat official account: vcbeat) learned from foreign media reports that Tivity Health, a leading U.S. provider of fitness and health improvement solutions, will acquire Nutrisystem, a company offering weight management products and services, for $1.3 billion.

On December 10 (U.S. local time), the two companies announced that they had entered into a definitive agreement under which Tivity Health will acquire all outstanding shares of Nutrisystem in a transaction consisting of cash and stock. Pursuant to the terms of the agreement, which were unanimously approved by the boards of directors of both companies, Nutrisystem shareholders will receive $38.75 in cash and 0.2141 shares of Tivity Health common stock for each share of Nutrisystem common stock held.

The transaction values Nutrisystem at an enterprise value of $1.3 billion and an equity value of $1.4 billion, equivalent to approximately $47 per share. The implied stock consideration of $8.25 per share was calculated based on the 10-day volume-weighted average price (VWAP) of Tivity Health’s stock as of December 3, 2018. Based on Nutrisystem’s five-day VWAP prior to the announcement, the implied transaction consideration of $47 per share represents a 30% premium. Upon closing, Tivity Health shareholders are expected to hold approximately 87% of the combined company.

NutriSystem (NASDAQ: NTRI), founded in 1972, is a company engaged in marketing and providing weight management systems. The company sells its weight management programs through direct-to-consumer sales and distribution channels via the internet and telephone.

NutriSystem went public in 2000 and filed for bankruptcy in 2002. Subsequently, Michael Hagan raised nearly $10 million to acquire approximately 59% of NutriSystem’s shares, becoming the company’s new owner. In 2002, NutriSystem achieved a remarkable feat, with its profits increasing 70-fold and its stock price rising 30-fold over three years. In early 2008, the company was named “the most affordable weight-loss program” by Forbes magazine.

NutriSystem initially offered only weight-loss counseling and a limited range of products, later transforming into a comprehensive weight-management company providing structured diet plans. In 2009, it began partnering with the membership warehouse club Costco; in 2012, it collaborated with grocery retailer Kroger to offer breakfast options; and in 2013, it teamed up with Walmart to provide a five-day “Jumpstart” weight-loss plan. In 2015, NutriSystem acquired South Beach Diet, a company specializing in healthy weight-loss eating programs, thereby becoming the owner of the brand.

Currently, NutriSystem helps American women, men, and seniors manage their weight and health through multiple weight-loss brands.

The merged company will offer a comprehensive portfolio of fitness, nutrition, and social engagement solutions at scale. Through this expanded product offering, Tivity Health will be better positioned to address weight management issues that contribute to many chronic diseases. The diversification and scaling of Tivity Health’s portfolio will benefit all stakeholders, including health plans, fitness partners, members, and consumers, as these products support healthier lifestyles and help reduce healthcare costs.

The two companies stated that the combination of Tivity Health’s and Nutrisystem’s robust marketing capabilities and data analytics expertise will enable the merged entity to enhance brand awareness across all consumer segments, while increasing membership numbers and engagement. The transaction will also create value for Tivity Health’s shareholders by adding new independent revenue streams, delivering cost and revenue synergies, and unlocking significant growth opportunities.

Based on the financial performance of the two companies for the 12 months ended September 30, 2018, revenue is estimated at approximately $1.3 billion, net profit at approximately $135 million, and adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) at approximately $223 million.

Following the acquisition, Tivity Health is expected to retain all existing Nutrisystem brands. Additionally, Dawn Zier, CEO of Nutrisystem, will become President and Chief Operating Officer of Tivity Health and join its Board of Directors. She will oversee Tivity Health’s nutrition and fitness division and report to Donato Tramuto, the company’s Chief Executive Officer.

Tivity Health will fund the cash portion of the acquisition through a fully committed term loan from Credit Suisse and its existing cash. At closing, Tivity Health’s estimated net leverage is projected to be approximately 4.5x, including recognized cost synergies. The company expects its net leverage ratio to fall below 3.5x by the end of 2020 and below 2.5x by the end of 2021.

Credit Suisse served as Tivity Health’s exclusive financial advisor, and Bass, Berry & Sims PLC served as its legal counsel. Evercore served as Nutrisystem’s exclusive financial advisor, and Davis Polk & Wardwell LLP served as its legal counsel.

The transaction is expected to be completed in the first quarter of 2019, subject to approval by Nutrisystem shareholders, regulatory authorities, and other customary closing conditions.

Tivity Health (NASDAQ: TVTI), founded in 1981, provides specialized, comprehensive solutions to help individuals improve their physical, emotional, and social well-being, thereby reducing direct medical costs and healthcare expenses associated with lost employee productivity. The company delivers medical, preventive, and wellness services to consumers through mobile phones, mobile devices, direct mail, the internet, face-to-face counseling, and interactive platforms. Tivity Health’s clients across North America include health plans, employers, integrated healthcare systems, hospitals, physicians, and government agencies in all 50 U.S. states, the District of Columbia, and Puerto Rico. The company also offers health improvement programs and services in Brazil, Australia, and France.