May 8, 2018

International Flavors & Fragrances Inc. (IFF) announced its agreement to acquire Israel-based, global flavors giant Frutarom Industries for $7.1 billion including debt.

Under the terms of the deal, Frutarom’s shareholders will receive $71.19 in cash and 0.249 of a share of IFF common stock for each share owned, for a total value exchange of $106.25 per share.

The deal, which is the second largest deal in history for an Israeli company after Intel acquired Mobileye for $15.3 billion last year, will see IFF jump from being the sixth largest to the second largest flavor company in a rapidly consolidating global industry; trailing only Givaudan SA.

Established in 1933, Frutarom operates under two main divisions – Flavors and Fine Ingredients – and creates, produces, and markets their products at more than a dozen locations worldwide. It markets and sells more than 70,000 products to more than 30,000 customers in 150 countries. The company is committed to a sustainability strategy, supporting farmers in multiple locations, and controlling its supply chain throughout to maintain full transparency and ensure product safety. The company’s product lines are concentrated on natural ingredients, which generate more than 75 percent of the company annual forecasted sales of $1.6 billion.

Frutarom has an extremely attractive product portfolio, including broad expertise in naturals and diverse adjacencies with capabilities beyond our core taste and scent businesses,” said Andreas Fibig, chairman and chief executive officer of IFF. “It also has significant exposure to complementary and fast-growing small- and mid-sized customers.”

“By combining our deep R&D expertise with Frutarom’s, we are offering our customers a broader range of solutions and accelerating our growth strategy,” continued Fibig. “We believe this combination will lead to faster and more profitable growth, enhanced free cash flow and generate greater returns for our shareholders.”

The resulting combination of IFF and Frutarom is expected to generate sales of $5.3 billion over the balance of this year, and by the third year is expected to generate synergies valued at $145 million.

This deal is the culmination of a long string of deals for Frutarom. Since 2011 the company has concluded more than 29 acquisitions.

Notable among these include deals for Polish savory flavor developer, producer, and marketer AMCO for $20.7 million in November 2015; the acquisition of New Zealand-based fruit ingredients company, Taura Natural Ingredients Holdings Ltd. for $70 million in June 2015; the acquisition of a 50 percent stake in algae-based biotech startup Algalo for $2.56 million in January 2016; the acquisition of New Jersey-based natural ingredient producer, Grow Co. for $20 million in January 2016; and in 2017 it closed on 12 strategic acquisitions, including its US$6.7 million acquisition of South Africa-based Unique Flavors Ltd. in February of last year.

Flavor Rave

Frutarom is not the only player in the global flavors industry that has been making strategic moves. The sector has been rife with deals over a wave of consolidation in recent years, and the terms that IFF agreed to reflect how hot this category is running. Bloomberg reports that IFF is paying 20.3 times Frutarom’s expected earnings for 2018, nearing the 22 times that Givaudan paid through its deal for Naturex earlier this year for $1.6 billion.

Part of the pressure on the industry is coming from players outside the space as global players position themselves to expand beyond commodities, up the production chain to gain a foothold in higher margin businesses, while other companies and investors seek to capitalize upon consumer demands for flavorful, but healthy foods.

One of the most notable deals in the category 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 confectionery 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.

Investors have also taken note of the growth potential to be seized in the flavors industry, as leading food and ag-focused private equity firm, Paine Schwartz Partners announced it made an undisclosed strategic investment in Lyons Magnus Inc. – a top developer and manufacturer of fruit-based flavor solutions for the dairy, foodservice, and healthcare industries in November of last year.

IFF itself went on in 2016 to acquire David Michael & Co, the third largest flavor company in the world after Givaudan and Firmenich. At the time, IFF expected 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 – a goal that will indeed be met with its deal for Frutarom.

“Today, we are extremely excited to combine Frutarom with IFF and together create global leadership in natural taste, scent and nutrition,” said Ori Yehudai, president and CEO, Frutarom. “The growth potential for the combined company is substantial and our shareholders will continue to enjoy this upside.”

-Lynda Kiernan