September 20, 2016

International Flavors & Fragrances Inc. (IFF), the third largest flavors company in the world behind Givaudan and Firmenich, has agreed to acquire Philadelphia-based flavors company, David Michael & Co., for an undisclosed amount.

David Michael was founded in 1896 by David Michael, a salesman for Fleer Chewing Gum (famous for their bubblegum baseball cards) and his partner Herman Hertz, an expert in distilled spirit ingredients and the developer of “Oldtime Special Body & Age ® — an ingredient that makes raw corn whiskey taste like aged bourbon within hours — according to the company website. The company is well known for its expertise in vanilla flavorings, especially in application within the dairy and beverage sectors, and now has locations in Philadelphia, California, Paris, Mexico and China.

“This bolt-on acquisition of David Michael is another important milestone in IFF’s Vision 2020 business strategy, helping us to win where we compete in the world’s largest flavors market as we look to further accelerate growth,” said IFF Chairman and CEO Andreas Fibig.

Although financial terms of the deal were not released, IFF expects the acquisition to add about $85 million in revenue to its bottom line in 2017 and to support the company’s goal of realizing its Vision 2020 business strategy which includes reaching targeted sales of between $500 million and $1 billion through mergers and acquisitions.

IFF CEO Andreas Fibig told Food Ingredients First, “We believe that acquiring David Michael will support our Vision 2020 business strategy by solidifying our #2 Flavors market share position in North America — the largest flavor market globally and our home market; complement our acquisition of Ottens Flavors in terms of capabilities and customer portfolio; bolster our ability to serve mid-market customers; and provide greater expertise in vanilla, dairy, and beverage.”

Global Activity

The global flavors segment has seen its fair share of consolidation and dynamic activity within the past few years as global players position themselves to expand beyond commodities and up the production chain in order to gain a foothold in higher margin businesses.

The most notable deal happened in July 2014 when U.S.-based Archer Daniels Midland (ADM) beat a field of rival bidders to acquire Wild Flavors, a producer of flavorings for cereals, ice cream, dairy, and confectionary items, for $3.1 billion from the U.S.-based private equity firm Kohlberg Kravis Roberts and Dr. Hans-Peter Wild. Once complete, the combination of ADM and Wild Flavors was expected to result in global sales of $2.5 billion.

ADM went on in October 2015 to expand its flavors portfolio with the addition of the natural and organic flavors company, Eatem Foods, which is backed by Linsalata Capital Partners, for an undisclosed amount, and in May of this year ADM built up its flavors business even further with the acquisition of Amazon Flavors – Brazil’s top producer of natural extracts, emulsions, and compounds.

Additionally, in February of this year, Monster Beverage Corporation announced that it agreed to acquire its long-term flavor supplier, American Fruits & Flavors (AFF), for $690 million. The acquisition will give Monster the added benefit of having an in-house flavor department which will result in reduced development and production costs and higher flexibility in regard to innovation.

Complementary Nature

Both IFF and Michael David are expected to bring together business strengths that will prove highly complementary.

“Combining the global reach and R&D tool-chest of IFF with the speed, agility, and innovation of David Michael will support the faster development of innovative solutions for mid-tier customers,” Fibig told Food Ingredients First. “And, as mentioned earlier, the addition of David Michael to our portfolio gives us a meaningful position in the world’s most beloved flavor tonality, vanilla.”

The deal, which is expected to close in the fourth quarter of this year, will be financed through existing resources, and is subject to approval by all regulatory authorities.

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Lynda Kiernan