Sealing the deal: IFF completes Frutarom acquisition, global leader to sharpen focus on naturals, health and wellness

05 Oct 2018 --- International Flavors & Fragrances Inc. has completed its acquisition of Frutarom signaling the start of the new global leader in taste, scent and, nutrition with “even greater aspirations.” One of the key strategies is to create a differentiated portfolio with an increased focus on naturals and health and wellness and to expand into fast-growing categories like savory solutions, natural colors, natural food protection and health ingredients.

Speaking to FoodIngredientsFirst, CEO, Andres Fibig says: “Over the past several months, our integration planning teams have been working to ensure that we capture the best of both companies and create a seamless transition to achieve our goals as a combined organization.”

“We are now even better positioned to provide customers with access to comprehensive and differentiated integrated solutions with an increased focus on naturals and health and wellness.”

“IFF customers get greater access to natural ingredients, natural colors, natural antioxidants, as well as botanicals and extracts. We are very excited about the cross-selling opportunities. Frutarom customers get greater access to IFF technologies and R&D, as well as its extensive ingredient portfolios for both flavors and fragrances. We are most excited about the cross-selling opportunities; in addition to the stronger product offering, we will have greater exposure to fast-growing customers and broader access to attractive adjacencies,” he explains. 

“This merger signifies a clear shift in traditional industry boundaries – essentially the evolution of our industry from flavors and fragrances to a broader taste and scent. To align with this, upon the close of our merger we renamed our business units from Flavors and Fragrances to Taste and Scent to represent our evolution in lockstep with that of the industry. As consumer preferences continue to evolve, with an increased global focus on health and wellness, we must evolve and offer customers comprehensive and differentiated integrated solutions to meet these changing these needs.”

“This combination is all about growth. It establishes and enhances our platform to deliver sustainable, profitable growth and provides important opportunities to expand into attractive and fast-growing categories, such as savory solutions, natural colors, natural food protection and health ingredients. It is a win for our customers, employees and shareholders.”

Last month Fibig said that IFF was on track to close the transaction in early October, which is ahead of the company’s initial expectations and that is exactly what’s happened. 

Hailed as a “momentous achievement,” the coming together of IFF and  Israel-headquartered Frutarom is one of the most significant acquisitions in the flavors and fragrances space, with the company expecting to generate an average sales growth of 5-7 percent. 

It follows Givaudan completing the acquisition and delisting of Naturex in mid-September, following the implementation of the squeeze-out procedure and the delisting of Naturex shares from the Euronext Paris stock exchange on September 18. 

In May, IFF agreed to acquire the Israeli flavors and ingredients company in a transaction valued at approximately US$7.1 billion, including the assumption of Frutarom’s net debt.

At the time, Frutarom’s President of Natural Solutions, Yoni Glickman, said that IFF was very interested in Frutarom’s Natural Solutions business and its Health and Nutrition business and the portfolios were highly complementary in geographical, customer and product terms. 

The combined company will be headquartered in New York City but maintain a presence in Israel. It will provide opportunities to expand into attractive and fast-growing categories, broaden complementary and growing customer base, including enhanced exposure to the fast-growing small- and mid-sized customers, such as private label, as well as establishing an improved platform to deliver sustainable, profitable growth.

It will also provide strong value creation opportunities to maximize shareholder value – including cross-selling benefits as well as cost synergies, according to the company. 

“The coming together of IFF and Frutarom is a momentous achievement. We are excited to be moving forward as one company and pursuing new opportunities that benefit all our stakeholders around the globe,” says Fibig. 

“Over the past several months, our integration planning teams have been working to ensure that we capture the best of both companies and create a seamless and efficient transition to achieve both our operational and financial targets for this combination.”

“We are celebrating the creation of a new IFF with even greater aspirations as a leader in taste, scent, and nutrition. On behalf of everyone at IFF, we welcome Frutarom and its talented team, and look forward to working closely with all employees to continue to deliver winning products to our customers and maximizing long-term value for our shareholders.”

In an exclusive and detailed interview with FoodIngredientsFirst back in May, Fibig dispelled suggestions that the US$7.1 billion was ushered in as a defensive response to Givaudan’s acquisition of Naturex, noting that the similar timings were “coincidental” and that talks with Frutarom had been ongoing for nine months. 

“We already announced in our 2015 strategy that we wanted to execute acquisitions. We have done five in the last three years and now one transformational move, which brings us closer to our targets for 2020. So it's a pure coincidence,” he stressed at the time. 

Integrating the diverse businesses will be challenging but achievable, with exposure to potential customer departures highly minimized throughout Frutarom’s broader customer base. 

“We think it is achievable,” Fibig claims. “It will help us with some of our procurement synergies, where we will get the bulk of our synergies and with our customer platform,” he says. “It will probably not be very easy. But with the exposure to so many different customers, there is no risk that when you lose one or two key customers that you are in danger of a deal.”

“None of their customers is bigger than 1.5 percent of their sales line, so actually that makes us very confident, as you cannot lose so much. Sometimes when you acquire companies who are very dependent on one or two customers, it can be a tricky situation during an integration. But it has not been the case here,” he said.

The acquisition comes at a time when the natural trend is considered to be something that will stay around for much longer, and the transaction will offer customers “wider and better portfolio solutions.”

What happens next?
IFF anticipates the combination with Frutarom will translate into accelerated financial performance, with robust top and bottom-line growth. The company expects to generate an average sales growth of 5-7 percent, and 10 percent adjusted cash EPS growth, on a currency neutral and pro-forma basis, over the 2019 to 2021 period. 

IFF also believes it will realize US$145 million in cost synergies by rationalizing procurement, optimizing global footprint and streamlining overhead expenses by the third full year after the completion of the merger. The company will be prioritizing repayment of debt and anticipates to be less than 3X net debt to EBITDA in 18-24 months to retain its investment grade rating.

Holders of Frutarom ordinary shares are entitled to receive US$71.19 in cash and 0.249 of a share of IFF common stock for each Frutarom ordinary share they owned. Frutarom shareholders will also receive a special dividend, on a per share basis, equal to 0.249 of the per share value of IFF dividends with a record date between May 7 and October 4, 2018. 

From yesterday (October 4), the company trades on the New York Stock Exchange (NYSE) and Euronext Paris under the ticker symbol IFF. On October 9, 2018, IFF shares will also trade on the Tel Aviv Stock Exchange (TASE) under the ticker symbol IFF. The ordinary shares of Frutarom are no longer listed for trading on the Tel Aviv Stock Exchange or the London Stock Exchange.

The months ahead will prove to be very interesting as the flavors sector continues to grow and now that two significant acquisitions are complete, we will begin to see how synergies and portfolio expansions will play out. 

By Gaynor Selby