On the Monday before the Christmas holiday, USANA Health Sciences (which if you didn’t know is a U.S. public company trading on the NYSE under the stock ticker USNA) announced its acquisition of an almost 79% controlling ownership stake in Hiya Health for a $205 million cash transaction…with contract features providing acquisition of the remaining equity at a pre-negotiated valuation scale. For the last twelve months ended September 30, 2024, Hiya Health generated net sales of $103 million and adjusted EBITDA of $22 million. That implies a transaction value of approximately 2.5x trailing twelve months revenue or almost 12x adjusted EBITDA…both of which are mostly in line with recent M&A transactions across the VMS industry. And though other founders love to obsess over those comparative metrics, regardless of where they landed, I’d imagine this is an amazing financial outcome for a company that was only founded four years ago…and raised in total a measly half-million dollars. But why would a multilevel marketing supplement company, that generates more than 80 percent of its annual revenue within the Asia Pacific region, acquire a direct-to-consumer (DTC) children’s supplement brand focused on the U.S. market? And my latest first principles thinking content will explain the strategic rationale behind this M&A transaction including how the multilevel marketing business model appears to be falling flat for some companies after years of public scrutiny, regulatory pressures, and changing consumer tastes. Also, I'll examine several other value accretive investment opportunities that USANA has pursued to advance its long-term growth strategy. In December 2020, USANA made a strategic investment in the protein bar brand manufacturer Built Brands. Beyond receiving a minority equity stake (in a growing company), Built Brands’ expertise was leveraged to accelerate the development, enhancement, and expansion USANA nutrition bars that were to be manufactured in its new foods plant. And then in November 2022, USANA acquired the protein bar brand Rise Bar. Additionally, in that same announcement…USANA acquired an emerging direct selling company (called Oola) that leverages a personal development framework to sell “mind and body” supplements. But for these companies dropping multilevel marketing…it’s always important to remember that “grass isn’t always greener on the other side.” But with the form of direct selling invented 80 years ago by Carl Rehnborg now becoming a tainted term of sorts today…I’d expect more of these MLM companies to add diversified layers of growth. Yet don’t get it twisted…these moves are mostly targeted at slightly camouflaging the primary business model just long enough until multilevel marketing can be reframed (and transformed) into something more attractive to younger digitally native generations.

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