Danone’s striking €1bn ($1.15bn) (so it’s said) swoop for Huel has come at something of a premium but underlines the skill with which the UK business built its brand, the corporate desire to tap into consumers’ growing interest in protein – and with the rise of GLP-1 drugs providing an intriguing backdrop.
Industry watchers see the French giant’s move for the meal-replacement firm as part of the Activia maker’s strategy to expand in protein-centric product areas and ‘functional’ nutrition, as well as an attempt to benefit from Huel’s experience in the direct-to-consumer channel.
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The deal – despite Danone not publicly confirming the price tag – has led to praise for Huel’s founders and the company’s present management team. And, amid the murmurings about whether consumer appetite for protein may be starting to plateau, the transaction confirms that the ingredient is a central factor in M&A in the sector.
Set up in 2014 by entrepreneur Julian Hearn and former NHS dietician James Collier, Huel – a portmanteau of human fuel – sells its plant-based, protein-packed products in the UK, continental Europe and the US.
The company started out as a direct-to-consumer business but now also markets its products – which contain 20-40g of plant-based protein (from a mix of peas, faba beans and rice) per serving – through bricks-and-mortar retail outlets.
Huel, which employs around 350 staff, has a manufacturing site and warehouse in the English city of Milton Keynes. Its product range encompasses the flagship “ready-to-drink meals”, as well as hot meals, bars and greens drinks.
“In our view, Danone’s acquisition of Huel looks strategically sensible and continues the group’s push into higher-growth, health-led nutrition,” Barclays analyst Warren Ackerman says.
Danone’s recent M&A has been peppered with deals for businesses focused more squarely on health, including last year’s deal for a majority stake in Kate Farms, a US business that supplies a range of products from nutritional shakes on sale at mass-market retailers to tube-feeding products sold directly to healthcare providers. Not all of Danone’s attempts at M&A have succeeded. US kefir maker Lifeway Foods – of which Danone owns a minority stake – remains (for now) resolutely publicly listed.
However, Danone’s eye-catching move for Huel adds something different to the Actimel and Alpro maker’s portfolio.
“Huel adds something slightly different; a scaled consumer brand in everyday complete nutrition, with strong digital execution and a younger, more lifestyle-oriented consumer proposition. In that sense, Huel can sit between Danone’s mainstream high-protein offer and its more clinical nutrition assets and we therefore see this as a very strong addition to the portfolio,” Ackerman says.
The transaction also brings a profitable, consumer-facing business that’s been growing at solid double-digits in recent years.
The most recent set of Huel accounts available at Companies House, the UK business register, show the firm’s revenue stood at £214m ($284.2m) for the 12 months to 31 July 2024, up 16% on a year earlier.
Pre-tax profits almost trebled to £13.8m. Huel recorded an adjusted EBITDA of £18.2m, up 86% on the 12 months to the end of July 2023. Its profit for the year was £13.1m, versus £2.2m in the previous 12 months.
“Its circa 59% gross margin is strong, driven by premium pricing, a direct-to-consumer model and efficient powder-based manufacturing. The growing US presence is also notable, with the market now accounting for 31% of the total business,” Stefano Di Napoli, the founder of the UK-based Consumer Products Growth Strategy consultancy, says.
Di Napoli also points to the make-up of Huel’s customer base. “Danone’s core consumers skew toward families and older adults, while Huel targets 25- to 45-year-olds, digitally native, health-conscious consumers. This is a segment Danone currently under-penetrates. An acquisition would provide immediate access to this audience and create opportunities for cross-selling and long-term brand expansion.”
Direct-to-consumer debate
But, away from who buys Huel’s products, it’s how they’re bought that several observers have highlighted as they’ve digested the deal. Huel has expanded from its direct-to-consumer roots, securing listings with UK grocers like Tesco and Sainsbury’s, European retailers like Rewe and ICA and US customers like Target. However, DTC remains central to Huel’s model and is seen as a principal reason why Danone wanted the business.
“Danone doesn’t need another yogurt brand, or protein drink. They need a digital-native customer acquisition machine,” Karl Bickley, a former Glanbia and FrieslandCampina executive and founder of UK-based Seventy8 Consulting. “Huel’s direct-to-consumer model, its subscription architecture, its community engagement – that’s what a multi-billion company like Danone can’t build internally without taking five years and a fortune but, in this case, it also brings a retail successful business at the same time.”
The track-record of major CPG businesses buying direct-to-consumer outfits is not spotless. Foodspring ceased trading last June six years after Mars acquired a majority stake in the German sports-nutrition firm.
Richard Wyborn, a partner at European consultancy Food Strategy Associates, also points to an announcement that came two months later when it emerged Ireland’s Glanbia was selling the online Body & Fit sports-nutrition business it had bought in 2017.
“One area highlighted by Danone – leveraging Huel’s DTC capabilities – warrants scepticism. Large corporates have historically struggled to integrate and fully capitalise on DTC models and the track record across the industry is mixed at best: Mars/Foodspring; Glanbia/Body and Fit). There is little to suggest this case will be markedly different,” Wyborn tells Just Food.
He points to the potential benefits ahead for Huel of having Danone as its owner – retail distribution. “The product is already performing strongly and Danone’s distribution capabilities should enable significant expansion – both within existing markets and into new geographies. There are also clear opportunities for synergies in R&D, particularly given Huel’s positioning around complete nutrition.”
Punchy price tag
The – reported – €1bn price tag will also be a talking point. The most recent publicly available numbers for Huel are now dated, covering the 12 months to the end of July 2024. However, the company gave Just Food a flavour of its figures for the following year, indicating revenue reached at least £250m, with an EBITDA margin of around 10%.
“While the strategic rationale is compelling, the valuation cannot be overlooked,” Wyborn says. “Danone has paid a substantial multiple and, despite the clear upside potential, there remain legitimate questions about whether the investment will ultimately deliver the expected returns.”
Ackerman says Barclays’ assumption is that Huel’s fiscal year 2026 sales will reach around £300m, which, with a 13% EBITDA margin, would see the company generate around £40m of EBITDA.
Those numbers would mean “a purchase multiple of 22 times EBITDA based on the reported acquisition value of €1bn”, he notes.
“This valuation multiple is quite high versus peers,” Ackerman adds. “However, this is easier to justify for an asset with strong growth, attractive category exposure and clear international runway.”
Di Napoli is also sanguine. “While Huel’s current EBITDA margin (around 8.5%) would be dilutive in the short term, its high gross margin provides clear upside. Combined with Danone’s scale and operational capabilities, there is a credible path to 15%-plus EBITDA margins within three to five years.”
