February 23, 2023

By Lynda Kiernan-Stone, Global AgInvesting Media

UK-based private equity firm Exponent has entered into an agreement to acquire IFF’s Flavor Specialty Ingredients (FSI) business in an all-cash deal for $220 million.

IFF’s FSI is a leading producer of specialty base aromas with a wide range exceeding 1,000 aroma chemicals and natural extracts, which provide inputs to the flavors market. 

Flavors – natural and otherwise – are a booming segment of the food value chain. In 2020, the global food flavors market was valued at $14.3 billion, the following year, it was valued at $14.66 billion, according to Fortune Business Insights. At an expected CAGR of 4.64 percent, the market is forecast to be valued at $20.12 billion by 2028. 

Likewise for the natural flavor market, which saw a market value of $8.63 billion in 2021, is expected to see a revenue CAGR of 5.7 percent through 2030, according to Reports and Data. 

With a truly global presence in this dynamic segment, FSI assets include four dedicated manufacturing and distribution facilities in Teesside and Hartlepool, in the United Kingdom; Cincinnati, Ohio, in the U.S., and Pucheng, China; and additional points of distribution in Mexico, Brazil, and Hong Kong. Through these sites, FSI serves more than 970 costumes and generated more than $100 million in revenue over the past 12 months. 

A Concentration of Flavors

Pressure on the industry is, in part, coming from players outside the space – as global commodity giants 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 growing consumer demands for flavorful, but natural foods – particularly in the EU market. 

These factors have resulted in a string of M&As in the flavors and ingredients sector – and one of the largest was by IFF, when the company acquired Israel-based global flavor giant Frutarom Industry for $7.1 billion including debt in 2018. 

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

Another watershed deal in the flavors industry occurred in 2014 when ADM beat out a field or rival bidders to acquire Wild Flavors, a producer of flavorings for cereals, ice creams, and confectionery items, for $3.1 billion.

Over the span of time, there’s been a flurry of additional activity. A small sampling includes:

~ 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 2017. 

~ Ambienta, the largest sustainability-focused private equity investor in Europe, continued to build out its natural flavors and ingredients platform Nactarome Group with the acquisition of UK-based Create Flavours, in May 2020. 

~ The Riverside Company added to its Riverside Flavor Platform with the acquisition of GSB & Associates in July 2020. 

~ Glanbia Nutritonals, a wholly owned subsidiary of Glanbia, acquired custom flavor designer Foodarom for US$45 million in September 2020. 

~ And Royal DSM, a global science-based company focused on nutrition, health, and sustainability, announced it had agreed to acquire First Choice Ingredients, a top supplier of dairy-based savory flavorings, for $453 million, in September 2021. 

~ Lynda Kiernan-Stone is editor in chief with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, as well as HighQuest Group’s Unconventional Ag. She can be reached at lkiernan-stone@globalaginvesting.com.

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