Martek Bioscience Forward and Horizontally Integrates with its Acquistion of Amerifit Brands
Last week, Martek Biosciences Corp, the world's largest algae-based Omega-3 DHA ingredients supplier with total sales of nearly $330 million in 2009, announced that it had acquired Amerifit Brands, a Connecticut-based company that develops and distributes dietary supplements, for roughly $200 million, in order to forward-integrate into the dietary supplement markets and diversify its product portfolio. Martek's decision to acquire Amerifit is expected to be beneficial to both parties.
In a highly fragmented and mature market such as the U.S. dietary supplement industry, an acquisition helps to increase a given company's economies of scale, to develop a broader product and service portfolio, and to increase its technical and market expertise and presence. Martek's decision to acquire Amerifit will carry out all of the aforementioned objectives. Acquiring companies that operates in different markets and performs a different function in the value chain will facilitate greater market penetration and protect the acquiring company against a possible direct disruption to its traditional line of business. Traditionally, Martek had a focus on manufacturing a narrow set of algae-based Omega-3 products which is potentially vulnerable to a new technology disrupting its current market position. In addition, the majority of its business has been B2B. With the acquisition of Amerifit, Martek has moved closer to the consumer and thus is able to earn a larger marketing margin per sale. Finally, the acquisition ought to be targeted to compliment the existing product range or distribution network. Martek already sells its life’sDHA into the dietary supplement channel and Amerifits’ product line (primarily focused on women’s health and probiotics) complements rather than conflicts with Martek’s Omega-3 products.
The primary advantage Martek enjoys is that it is able to expand quickly into the dietary supplement business without incurring the costs of creating a new start-up company from scratch. In addition, the blending of Martek's and Amerifit's distribution chains will increase each company's penetration into markets outside of their historic bases. A possible disadvantage that may affect Martek and its decision to acquire Amerifit is that it can have a considerable impact on each company's staff, particularly when the staff's roles within the new organization have to be redefined. This can have an adverse effect on the new company's morale. A possible consequence of low employee morale is increased employee turnover, which is negatively correlated to the company's stock in human capital. In addition, Martek must be aware of potential cannibalization of its current relationships with dietary supplement manufacturers who current source product from Martek. Not effectively dealing with the likely fact that its current clients will be converted into potential competitors can hurt Martek in the short run. Despite this and the challenge of operating in a highly competitive dietary supplement market place, Martek's decision to acquire Amerifit is expected to be beneficial to both parties.