DuPont-IFF tie up will spur more deals in flavour and ingredient sector, say analysts

By Oliver Morrison contact

- Last updated on GMT

Getty/metamorworks
Getty/metamorworks

Related tags: DuPont Nutrition & Biosciences, Iff, Flavor, Ingredient, Mergers and acquisitions

Equity analysts predict a bright future for the mega merger, completed today (1 February), between International Flavors & Fragrances Inc (IFF) and DuPont’s Nutrition & Biosciences (N&B) business. They also expect more tie-ups to come in the fragmented yet flush with funds flavours and ingredients sector.

The combination of IFF and DuPont’s Denmark-based N&B division creates a global leader in high-value ingredients and solutions for the Food & Beverage, Home & Personal Care and Health & Wellness markets, with an estimated 2020 revenue of more than $11 billion and EBITDA (earnings before interest, taxes, depreciation, and amortization) of around $2.5 billion. The combined company will continue to operate under the name IFF. Analysts at Swiss bank UBS said this effectively doubles the scale of the 'old' IFF, giving it around a 50% scale advantage over its largest direct competitor and an R&D spend roughly twice that of its peers. 

What’s more, following the completion of the merger with DuPont’s N&B division (valued at $26.2bn) and its 2018 purchase of Israeli flavour and fragrance firm Frutarom (worth around $7bn) IFF will have successfully completed the two largest deals within the global consumer chemicals sector over the last five years.

The DuPont deal was previously announced on December 15, 2019 and received approval from IFF shareholders on 27 August 2020.

The complementary portfolios give the company leadership positions within the Taste, Texture, Scent, Nutrition, Enzymes, Cultures, Soy Proteins and Probiotics ingredient categories. IFF now begins “a new era guided by an authentic customer-centric approach and commitment to execution, deep R&D and innovation capabilities, a storied legacy of artistry and a passion to be an essential partner for its customers around the world,”​ the New York-based company said.  

“We are thrilled to officially unite IFF and N&B, forging a leader in the global consumer goods and commercial products value chain that will redefine our industry and create a leading ingredients and solutions provider for our customers across a broad range of end-markets,”​ added Andreas Fibig, IFF Chairman and Chief Executive Officer.

As part of the new brand identity, IFF has launched a new tagline, purpose, brand commitments, and cultural attributes and values. The company believes that these brand components will support the success of the four divisions that now comprise the new IFF.

IFF’s combined Taste, Food & Beverage division -- its largest -- will now be called Nourish. This new identity better aligns the division with the enhanced capabilities, vision and purpose of the combined company, the company said.  

IFF’s Health & Bioscience (H&B) platform will remain an innovation partner for customers across a broad range of consumer product, industrial and agricultural sectors.

“IFF will be a new company for a new era,”​ added Fibig. “We have seen acceleration and evolution of consumer trends through the pandemic with long-term impacts. Customers across end markets expect more from their value chain partners and the new IFF is well-positioned to deliver.

“We are creating an agile, empowered and innovative business that provides exceptional service and delivers on our commitment to be an essential partner for our customers.”

Investors bullish on latest merger

Bernstein equity analyst Gunther Zechmann noted strong demand for shares of the combined company’s stock. IFF shares tendered to DuPont shareholders were nearly twice oversubscribed. This demand ‘shows investors' confidence in the new company’, he said.

The team of analysts at UBS highlighted IFF as a top pick for 2021.

They expect new IFF sales (i.e. scale) will be around 50% larger than its nearest competitor, and R&D spend will be almost twice that of most of its peers thanks to the benefits of faster innovation from the combined R&D organizations. 

The UBS team added that new IFF sales are around 75% exposed to the food ingredients sector, which in turn is set to benefit from the higher growth they forecast.

“Since there are significant interactions between the many ingredients in processed food, customers can also benefit from the simplicity of a provider of integrated taste solutions, rather than buying individual ingredients from multiple suppliers. We believe customers could be willing to pay more for integrated solutions and faster solution development,”​ they wrote in an investor note.

They added: “We note that it makes sense for ingredient supplier growth to have a wider range than customers because suppliers are upstream. Longer term, the demand for more natural ingredients and more diverse product offerings create an opportunity for flavor & fragrance, and food ingredient companies to outperform.”

Meanwhile, the UBS team expects more tie-ups in the in the ingredients sector this year.

“We see M&A remaining a key component of growth within the sub-sector in what remains a relatively fragmented industry,”​ they wrote.

“With most European companies holding balance sheet flexibility and the sector highly cash generative, most have sufficient funds available to execute on further deals too. Organic sales growth prospects for the sub-sector remain healthy, limiting the need for more transformational moves.”

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