Consumer healthcare in a spin cycle

Consumer Healthcare in a spin cycle 

Peter Gay 

Consumer Healthcare, one of the most fragmented international markets, has been on course for sustained consolidation in recent years.

The latest big news is GSK’s spin out of the consumer health franchise to form Haleon, which dual-listed this week and stands out as the largest IPO on the London Stock Exchange in over a decade. Leading the business is industry veteran Brian McNamara, who himself is not shy of a transaction, having been instrumental in the GSK CHC and Novartis OTC joint venture in 2015.  

The business has leading positions in Oral Health, Respiratory, Digestive Health, Pain relief and Vitamins, Minerals & supplements (VMS). It’s the latest move in a sector quickly becoming highly distinct from its pharmaceutical owners’ ambitions as diversification is off the table in favour of a core market focus.  

The trend is set to continue with J&J circa one year behind GSK in their spin out of their Planned Consumer Healthcare Company, yet to be given a name. Mooted to follow in this direction is Sanofi Consumer Healthcare, which has been carefully carving itself away from the mothership that is pursuing the higher margins of the Biopharmaceutical sector.  

Consolidation can be considered a defence move in a market that is facing some challenge from immediate inflationary market pressures, whilst in the midterm the boom of Direct-to-Consumer channels in some categories is both an opportunity and a threat to market share and growth prospects. 

There is still huge runway for more deals in the coming years and M&A’s look a strong possibility for several companies looking keenly at their growth engines. Today, no more than 8% of the global £160 billion market is owned by any one company.  

The larger shareholders of Consumer health portfolios will now rank in order of sales as follows: J&J Consumer Health, Haleon, Procter & Gamble Healthcare, Reckitt Consumer Health, Bayer Consumer Health, Nestle Consumer Health, Sanofi Consumer Health.  

Beyond that, the market is littered with Small and Mid-Cap companies.  

Independence breeds freedom  

As a standalone business there are several perceived benefits on offer.  

  • Control over your own capital allocation priorities to drive growth in the right areas – for instance, in radical Digital Transformation and ESG efforts, which are top of the corporate agenda today. 
  • Opportunity to attract a new set of investors who previously couldn’t access the CHC company while under the big pharma structure. 
  • Opportunity to rebrand and attract new talent that pursues the CPG market dynamics. 
  • Leverage new HQ locations for innovation, investment, and talent. 
  • Relevant Board Members – to help companies in the challenges of today. 
  • Fit for purpose suppliers, partners, and advisors.  

FMCG Vultures 

For all its virtue, freedom does also come at a potential cost.  

Whether the Consumer Health spin outs can stand on their own over time remains to be seen and it’s expected that the FMCG sector will continue seek the synergies forged in complimentary global sectors dominated by similar online and offline retail channels, at least particularly in markets outside of Europe – here, the market is more pharmacy-led.  

Consumer multinationals such as Reckitt and Nestle have been displaying their desire to develop in health and wellness products as customer tastes adapt to self-care and preventative treatments. With access to more personal health data than ever consumers are becoming hyper aware of aspects of their health which drives opportunities for growth in the sector.    

We saw Unilever make a strong move for GSK’s Consumer business this year before taking the IPO route, thus highlighting straightforward evidence that the FMCG sector is watching and evaluating the CHC space carefully. 

In short, the predators will continue to circle as it becomes ever more simplified to take a bite out of this exposed sector. 

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