Natural

Alternative
International,
Inc.
Team Member:
Qiannuo Li, Zini Ji, Xunyun Fan, Jiayang Chen
 Table of Contents
01 Company Overview

02 Financial Analysis

03 Acquisition Valuation

04 Sensitivity Analysis
 Company
01
Overview
Company Overview: Natural Alternative International, Inc.
• Headquarter: Carlsbad, CA
• Founded: 1980
• Nasdaq: NAII
• Market Cap : $73 M (9/2022)
• Formulates & manufactures customized nutritional supplements & ingredients

(NAII-Investor-Presentation, 2022)
Intellectual Capacity

• 11 US patents
• 9 non-US patents registered in North America, Europe & Asia
• 11 US trademarks
• 34 foreign trademarks
• Proprietary ingredients : CarnoSyn® and SR CarnoSyn® beta‐alanine (launched in 2020)
• Functions of ingredients : build muscle & enhance sustainable performance; SR CarnoSyn
remains in body longer

(NAII-Investor-Presentation, 2022)
 Competitor analysis

Company 1 Company 2 Company 3 Company 4

Branded nutritional
Herbal and nutritional
supplements & Nutritional ingredients, Weight management,
supplements, personal
functional foods functional foods &Sports sports nutrition &
care & home care
(vitamins, minerals, nutrition products personal care products
products
herbs)

Nutraceutical Nature's Sunshine

Glanbia plc Herbalife Nutrition Ltd
International Corporation Products
 SWOT analysis
Strengths Weakness
• Patent portfolio • Few key suppliers
• Mature manufacturing • Limited marketing
process & advertising budget
• Diverse customer base

Opportunities Threats
• Aging population • Regulation scrutiny
• Growing demands • Fluctuating raw
• Convenience material prices
& accessibility • Intense competition

(Natural Alternatives International, Inc. , 2020)

 Porter's Five Power Analysis
The Threat of New Entrance: low (1 out of 5)

Bargaining Power of Suppliers: high (4 out of 5)

New Entrance
threat
Bargaining Power of Buyers: comparatively high (3 out of 5) 4
3
The Threat of Substitutes: moderate (2 out of 5) Competitive
2
Suppliers
Rivalry 1
Competitive Rivalry: high (4 out of 5) 0

Substitue Buyers
 Financial
02
Analysis
NAII Historical Financial Statements
 Drivers for Revenue Growth
Innovation and New Product Development
NAII Revenue, $ MM • formulating supplements with unique ingredients
$ 300 • Improving delivery systems
• Targeting specific health concerns
CAGR 8.4%
$ 250
Expansion into New Markets
$ 200
• Entering international markets
$ 150 • Targeting specific demographic groups

$ 100
Improving cost structure
$ 50
• Operational Efficiency
$0 • Supply Chain Optimization
2020 2021 2022 2023E2024E2025E2026E2027E
Acquisitions and Strategic Partnerships
 NAII Profitability & Liquidity
Strong profitability Position and stable margins
FY 2020 experienced
Suggests that the company has the potential for
ongoing global COVID‐19 pandemic
continued growth and profitability.
50.0% 30.00
20.0% 45.0%
25.00
40.0%
15.0% 35.0%
20.00
30.0%
10.0% 25.0% 15.00
20.0%
10.00
5.0% 15.0%
10.0%
5.00
0.0% 5.0%
2018 2019 2020 2021 2022 0.0% 0.00
2020 2021 2022 2023E 2024E 2025E 2026E 2027E
-5.0%
ROE% ROA% ROIC% EBITDA Gross Profit Margin - % EBITDA Margin - %
 Leverage & Liquidity
Low Debt Levels, suitable for an LBO structure
Moderate position in liquidity
6.00

total debt total equity debt/equity 5.00

100 16.0% 4.00

90 14.0%
80 3.00
12.0%
70 2.00
60 10.0%
50 8.0% 1.00
40 6.0%
30 0.00
4.0% 2018 2019 2020 2021 2022
20
10 2.0% Current Ratio
0 0.0% Quick Ratio
2017 2018 2019 2020 2021 2022 2023
Working Capital to Total Assets
 Capital Allocation
Stable and predictable cash flows, allowing it to meet its
debt obligations. Consistent cash flows reduce the risk Consistently invested in R&D
associated with the borrowed funds

$30.00 4 1.8%
3.5 1.6%
$25.00
3 1.4%
$20.00 1.2%
2.5
$15.00 1.0%
2
0.8%
$10.00 1.5
0.6%
$5.00 1 0.4%
0.5 0.2%
$0.00
4.05 5.31 4.51 5.04 26.46 10.75 2024E 0 0.0%
-$5.00 2020 2021 2022 2023E 2024E 2025E 2026E

-$10.00 R&D R&D/Sales

Capital Expenditures FCF 0perating CF
 Acquisition
03
Valuation
 Public Company Comparables
Symbol Name EV/Sales(FY0) EV/EBITDA(FY0) EV/EBIT(FY0） P/E(FY0)
HIKA.BO Hikal Ltd 2.22 19.31 22.77 30.91
RX.V Biosyent Inc 2.40 9.12 8.42 15.78
UG United-Guardian Inc 3.15 9.60 10.27 18.67
ABBOTIN
DIA.N Abbott India Ltd 8.52 36.66 34.15 46.80

LUPN.NS Lupin Ltd 2.29 27.50 37.90 68.54

RDY Dr Reddy's Laboratories Ltd 3.40 13.49 13.83 17.03
UCB.BR Ucb SA 3.30 14.39 23.58 33.37

TEV.HA Teva Pharmaceutical Industries Ltd 1.97 6.44 9.47

JNJ Johnson & Johnson 4.64 13.03 17.35 25.85
LFVN LifeVantage Corp 0.14 4.41 4.51 17.97
THRN Thorne Healthtech Inc 0.96 18.48 29.25 12.22
Average 3.00 15.67 19.23 28.71
Median 2.40 13.49 17.35 22.26

NAII & Company data for FY0 ($, millions)

Sales EBITDA EBIT EPS
Indicator $170.97 $17.84 $13.67 $1.75
Estimated enterprise
value $410.67 $240.58 $237.23 $238.38
(SOURCE: NAII, REFINITIV) Add cash &
equivalents 21.83 21.83 21.83 21.83
Subtract debt 9.49 9.49 9.49 9.49
Equity value $423.01 $252.92 $249.57 $250.72
Value per share 69.01 41.26 40.71 40.90
 M&A Comparables
SUPPLEMENTS SECTOR M&A COMPANIES MULTIPLES
Symbol Name EV/Sales(FY0) EV/EBITDA(FY0) EV/EBIT(FY0） EV EBIT
BKL.AX Blackmores Limited 2.40 18.50 26.51 1,073.30 40.49
GL9.IR Glanbia plc 1.00 10.10 14.24 4,635.20 325.42
HOO.SG Herbalife Nutrition Ltd. 1.00 6.50 10.52 5,963.00 567.00

JWEL.TO Jamieson Wellness Inc. 3.30 16.00 15.38 1,192.00 77.52

MED Medifast, Inc. 1.40 9.40 11.58 2,140.00 184.81
WW WW International, Inc. 1.60 8.40 2,076.50
USNA USANA Health Sciences, Inc. 1.30 8.00 13.68 1,472.00 107.62
Average 1.71 10.99 15.32
Median 1.40 9.40 13.96

NAII & Company data for 2022 ($, millions)

Sales EBITDA EBIT
Indicator $170.97 $17.84 $13.67
Estimated enterprise value $293.09 $195.99 $209.38
Add cash & equivalents 21.83 21.83 21.83
Subtract debt 9.49 9.49 9.49
(SOURCE: Capstone Partners, REFINITIV)
Equity value $305.43 $208.33 $221.72
Value per share 49.83 33.98 36.17
 Pro Forma Income Statement
ProForma Actual
FY2022 FY2023 FY2024 FY2025 FY2026 FY2027
Net revenue $ 171.00 $185.36 $200.93 $217.81 $236.11 $255.94
% growth rate -4.20% 8.40% 8.40% 8.40% 8.40% 8.40%
Total cost of sales 140.50 $152.85 $165.68 $179.60 $194.69 $211.04
AS % of Revenue 82.16% 82.46% 82.46% 82.46% 82.46% 82.46%
Gross profit 30.51 $32.52 $35.25 $38.21 $41.42 $44.90
Total Selling, General & Administrative 16.83
Expenses $17.83 $19.33 $20.95 $22.71 $24.62
AS % of Revenue 9.84% 9.62% 9.62% 9.62% 9.62% 9.62%
Operating income 13.68
$14.69 $15.92 $17.26 $18.71 $20.28
Interest expense 0.08 $0.01 $0.01 $0.02 $0.02 $0.02
Foreign Exchange Gain/(Los 0.12 $2.20 $2.20 $2.20 $2.20 $2.20
Other Non-Operating Income/(Expense) -0.05 -$0.02 -$0.02 -$0.02 -$0.02 -$0.02
Income before Taxes 13.66 $16.86 $18.09 $19.43 $20.88 $22.45
Income Taxes 2.95 $13.49 $14.47 $15.54 $16.70 $17.96
Net income $10.71 $3.37 $3.62 $3.89 $4.18 $4.49
Earnings per share
Basic (in usd per share) 1.75 $0.56 $0.61 $0.66 $0.72 $0.78
Diluted (in usd per share) 1.74 $0.55 $0.60 $0.66 $0.72 $0.78
Shares used in per share calculation
Basic (in shares) 6.12 $6.04 $5.96 $5.88 $5.80 $5.72
Diluted (in shares) 6.16 $6.08 $5.99 $5.90 $5.81 $5.73

(SOURCE: NAII, REFINITIV)

 Pro Forma Balance Sheet

(SOURCE: NAII, REFINITIV)

 DCF Analysis – FCF Buildup

Revenue: 5-year average 8.4%

COGS: 5-year average 82.46%

Corporate Income Tax: 21%

Change in PP&E: 4-year average 9.78%

Depreciation: 5-year average 5.04%

Change in NWC: 4-year average 0.17%

Capital Expenditure: 5-year average 5.8%

(SOURCE: NAII, REFINITIV)

 Deal Structure

Share Price $10.44 /Per Share

Shares Outstanding 6.15 Million Shares
M&A Equity Value $83.47 Million
Equity Book Value $88.52 Million
Excess Value $-5.05 Million

70% Debt $58.43 Million

30% Equity $25.04 Million
 WACC Analysis
Cost of Capital Cost of Debt

WACC Calculation
 DCF Analysis – Terminal Value

UFCF = EBIT - Taxes + D&A - ΔNWC - CapEx

Discount Rate: WACC 6.01%

TV = FCF ( t + 1 ) / ( K – g )
= 218.16$

(SOURCE: NAII, REFINITIV)

 Valuation & Share Price
M&A Comparable Public Comparable DCF Analysis

Expected Price: Expected Price: Expected Price:

$33.98 $40.90 $31.95

Weight: 40% Weight: 20% Weight: 40%

Target Price for the LBO Deal:

$34.55

Note: The offer share price is $13.57 as of 6/30/2022.

 Return Analysis
Expected Data after LBO
300.00
255.94
250.00 236.11
217.81
200.93
200.00 185.36

150.00

100.00

50.00

0.00
FY2023 FY2024 FY2025 FY2026 FY2027
Revenue EBITDA
 Risk
04
Analysis
 Model Risk：Sensitivity Analysis

WACC Growth Rate

M&A Multiplier Public Multiplier

 Monte Carlo Analysis
Enterprise Value
350

300

250 Maxium EV:

200 $224.53
150 Minium EV:
100 $192.16
50

0
192 195 199 202 205 209 212 215 219 222

4 variables: COGS% Sales, SG&A% Sales, Terminal g, WACC

Frequency: 5000
Risk related to Aquisitions

1
Difficulties in integrating
the products, personnel
and operations
2
Potential inability to
achieve cost savings and
other benefits
3
Potential loss of key
employees
Thanks!
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