Big ingredients suppliers returned to the dining table at the end of 2010 after a lull in merger and acquisition (M&A) activity during the financial crisis.
DuPont’s recent €4.87bn acquisition of Danisco was the biggest deal but the past 12 months saw a number of other major transactions including the BASF purchase of Cognis and the sale of National Starch to Corn Products International (CPI).
Areas of opportunity
In a new report, Rabobank said this return to M&A is likely to continue.
“The food ingredients industry has many sectors and categories where consolidation is about to happen: health and nutrition, proteins, fibers, bakery ingredients and savoury ingredients to name but a few,” said report author Maya Donceva.
Donceva added that a limited number of sectors, including fragrances, flavours and enzymes, are now highly consolidated but overall the industry remains quite fragmented.
But even if the market is fragmented, what are the forces pushing food ingredients companies to seek out acquisitions?
Feeding M&A hunger
Donceva said M&A can give companies the opportunity to add new technologies and higher margin products to their portfolios and maybe reduce dependency on cyclical, commodity type products. The analyst described technology as a key differentiator of margins in the sector, making it a key to profitable growth.
And as food manufacturers increase their global footprint and size, there is a strong incentive for major ingredients companies to follow suit. They must have the global production and supply chain necessary to ensure that they remain on the preferred list of suppliers and can follow the big multinationals into new markets.
Indeed, the attraction of acquisitions in the ingredients market is helping to feed the high prices that companies are willing to pay to secure the right buys. Another key reason for the relative high multiples (enterprise value/EBITDA) being paid is the scarcity of suitable targets. Rabobank said there is an absence of mid-sized players and to be attractive companies must meet specific technology and market position criteria.