Better Breathing
Invested Banker to the Consumer Industry
COUNTERPARTY: GlaxoSmithKline plc
SEGMENT: Personal Care, OTC & Cosmetics
TRANSACTION VALUE: $507.0 million
CLOSING DATE: December 19, 2006
ROLE: Exclusive Financial Advisor

CNS, Inc. (“CNS” or the “Company”), headquartered in Minneapolis, MN, is a publicly-held company that markets the Breathe Right nasal strip and FiberChoice supplement brands. CNS was founded in 1982 by Drs. Daniel E. Cohen and Frederick T. Strobel as a partnership formed to explore and commercialize a product to monitor the brain during surgery. CNS went public in 1987 and, in 1992, obtained the exclusive license to manufacture and sell the Breathe Right nasal strip. In 1998, Marti Morfitt joined CNS from General Foods as CEO, and steered the Company on a growth trajectory that set the stage for its sale in December 2006.

“Sawaya Partners was selected to conduct the sale of CNS by its Board because of their extensive knowledge and understanding of the Consumer Products industry combined with their superior understanding of the business, strategy, and potential of CNS. It was a very good decision. In addition to their strong industry knowledge, the team at Sawaya Partners showed great knowledge and integrity in designing and running the sale process and strong expertise in supporting negotiations. They also proved to be great team players in their work with management, the Board, and our legal team at Lindquist & Vennum.”


Breathe Right strips are the leading nasal dilator strips worldwide, and FiberChoice is the fastest growing line of dietary fiber supplements in the United States. The Breathe Right brand features a line of nasal dilator strips and a line of snore relief products that are taken orally. Breathe Right strips treat snoring and nasal congestion caused by colds (94% people), allergies (69% people), snoring (50% people), sinusitis (19% people), and deviated septum (10%). The FiberChoice brand offers a line of chewable fiber supplements with a “Fiber for Health” positioning. Both brands are protected by patents in the U.S. and key markets worldwide, and supported by scientific evidence for their product claims. The sales growth of the Breathe Right brand and the FiberChoice brand is driven by consumer insights and a focused strategy that has been very successful. The Breathe Right brand has delivered 12% and the FiberChoice brand 54% compound annual sales growth over the three years preceding the transaction.

The U.S. market generates 86% of the Company’s sales. Breathe Right branded products are marketed in 27 countries. At the time of the announcement of the transaction, CNS reported sales of $122.2 million for the twelve month period ended September 30, 2006, representing an increase of 20% over the previous twelve month period.

Sawaya Partners’ relationship with CNS dates to the mid-1990’s when Dr. Dan Cohen was CEO of the Company and a key principal of Sawaya Partners was a senior officer in PaineWebber’s Consumer Products group. The relationship expanded in the three years preceding the sale when Sawaya Partners was asked by CNS’ Board and its senior management to review strategic alternatives that may be available to CNS in connection with the Board’s annual strategic business review process.

This process had been devoted to evaluating the strategies for developing its core Breathe Right and FiberChoice businesses and, since 2002, CNS’ search for a third brand, or platform, to complement its brand portfolio. Sawaya Partners’ review of CNS’ strategic alternatives consisted of (i) the sale of CNS; (ii) developing or acquiring a third platform; (iii) dividend payment matters; (iv) the evaluation of share repurchases and (v) a general review of the consumer healthcare market with emphasis, from time to time, on the mergers and acquisitions activity in this market.

Despite CNS’ efforts and the efforts of Sawaya Partners, CNS was unsuccessful in identifying an attractive, strategic brand acquisition candidate that would justify the risk and expense inherent in the acquisition. One of the reasons that CNS sought to acquire a third platform was to reduce its revenue dependence on a single product line, Breathe Right. With the patents on the Breathe Right products expiring in 2011, CNS also believed that there would be uncertainty in protection for the current Breathe Right products and likely increased competitive challenges following the expiration of its patents. At a Board meeting in March 2006, the Board determined that a sale of the Company appeared to have the most promise as a way to maximize the value of the Company for its stockholders.

Based on its long-standing relationship with the Company, and its consumer healthcare industry network, Sawaya Partners was mandated to maximize value to the shareholders by identifying a global OTC company capable of leveraging the strong Breathe Right brand and growing the FiberChoice business by providing a larger, international platform.

In May 2006, Sawaya Partners presented the Board of Directors with detailed information regarding the strategic sale process. This included (i) a discussion of the selling points of the Company and its business; (ii) an outline of the potential challenges relating to the sale process; (iii) a presentation of the analytics underlying valuation parameters; (iv) a review of potential strategic and financial buyers; and (v) an assessment of the status of the consumer healthcare mergers and acquisitions market.

Sawaya Partners also discussed with the Board the timing and details of a sale process and recommended a highly targeted sales approach allowing both flexibility and strict confidentiality. Based on advice from Sawaya Partners and CNS’ counsel, Lindquist & Vennum, a decision was made to avoid any public disclosure as to the process underway. Highlights of the process timeline are shown below:

  • In June 2006, fourteen parties were identified as potential buyers and contacted. Of that group, nine entered into confidentiality agreements and received a confidential information memorandum.
  • Five parties attended management presentations, the majority of which were held in August 2006.
  • Two final bids were received from major consumer healthcare companies late in September 2006.

The transaction represented a strategic inflection point in Kaz’s evolution. The partnership with Braun expands the Kaz product portfolio, increases its international presence, particularly in Europe, and establishes a platform for further organic and external growth in the health & wellness category.

  • GSK’s Consumer Healthcare business is one of the world’s largest. Its brand portfolio includes the leading smoking cessation products (Nicoderm CQ and Commit), as well as numerous medicine cabinet staples such as Panadol, Abreva, Aquafresh, Sensodyne and Tums
  • The transaction was valued at $37.50 per share or approximately $566 million (enterprise valuation of $507 million net of approximately $59 million in cash), and represented a 31% premium over the trading price of CNS common stock at close of business on the day of announcement, and a 56% premium over the undisturbed average stock price over the prior twelve months
  • The purchase price represented a sales multiple of 4.1x CNS net sales and a multiple of 16.0x CNS EBITDA for the twelve months ended September 30, 2006. At the time, both of these valuation metrics represented industry re-defining benchmarks for a company of CNS’ scale
  • Reflecting the strict confidentiality and speed of the process, CNS’s stock price actually fell during the process, and trading volume was lower than normal.