GNC sale to launch in September – sources

Provided exclusively by Mergermarket

GNC (NYSE: GNC) is expected to kick off a sale process next month, four sources briefed on the situation said.

The Pittsburgh-based vitamins and supplements retailer has not yet sent out books to prospective bidders, two of these sources said.

Chinese investment group Fosun International (HKG:0656) and pharmaceutical companies Shanghai Pharma (SHA: 601607) and SinoPharm (HKG: 1099) are among the potential suitors for GNC, the first source said.

GNC and Fosun declined to comment. Shanghai Pharma and SinoPharm were not immediately available for comment.

After reporting weak 2Q16 earnings, GNC announced in late July the departure of CEO Michael Archbold and suspended its earning guidance and share buybacks. GNC appointed Director Robert Moran as interim CEO.

A person familiar with the matter said Moran likely wants to take a look at various alternatives before committing to a sale and that there is no firm timeline for a process. Moran formerly served as CEO of specialty retailer PetSmart.

This news service in July reported that GNC was drawing early interest from Chinese suitors. This spring GNC said it had hired Goldman Sachs to explore strategic alternatives.

Chinese private equity firms may be interested in GNC through a partnership either with a Chinese strategic buyer or a US strategic, said the first source. He said in the latter scenario, the PE firm would manage GNC’s expansion into the Chinese market.

There is a strong appetite among Chinese buyers for US health and wellness buys as China’s middle class grows and consumers place a higher value on products from the west rather than locally produced, this news service previously reported.

Still, one of the sources said he was skeptical of Chinese strategics’ ability to pay a high valuation for a business that needs to be turned around.

Even if GNC’s business stabilizes, and it has in the past proven to have decent margins and generated good cash flow to support leverage, the deal will have to be a low EBITDA multiple as there is not much growth left in the business, this source said.

GNC currently trades at around 6.5x TTM EBITDA. The stock has declined more than 20% since the July earnings announcement.

A Chinese buyer could roll out the GNC brand in China as a big new market for its products, a sector advisor said. But he said he expects suitors will have less interest in operating GNC’s existing brick-and-mortar stores in the US.

The fact that GNC has not yet started to explore a sale may indicate that the company has not received strong interest for either parts of or the whole company, a second sector advisor said.

by Yiqin Shen, Bhavna Kaul and Nick Clayton in New York and Ling Yang in Hong Kong

As seen in the mergermarket newsletter on 16/08/2016

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