International Flavors & Fragrances will acquire Frutarom Industries, an Israel-based flavors, savory solutions and natural ingredients company, for $7.1 billion.
The combined company would generate about $5.3 billion in sales during 2018, the companies said. IFF said the deal could create an estimated $145 million in synergies by the third full year following closure of the transaction — expected to take place during the next six to nine months.
IFF and Frutarom will give customers access to more products, with an increased focus on naturals and health and wellness. "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," Andreas Fibig, IFF chairman and CEO, said in a release.
With the Frutarom purchase, IFF said it is taking a global leadership position in the natural taste, scent and nutrition space — 75% of Frutarom's sales are in natural ingredients. The deal also expands IFF into natural colors, enzymes, antioxidants and health ingredients while giving it access to smaller and mid-sized customers, including private-label ones, which comprise 70% of Frutarom's sales.
For food and beverage companies doing business with these companies, there could be advantages to having them together. It could give them access to a combination of new flavors, solutions or ingredients that could be combined to convey a particular taste, change a flavor already present, or perhaps mask an unwanted one.
This latest acquisition follows a recent buying spree on IFF's part. The company bought another Israeli company — Aromor Flavors and Fragrances — in 2014. A year later, IFF acquired Henry H. Ottens Manufacturing, and in 2016, it bought David Michael & Co.
Food and beverage companies use flavorings, colors and enzymes to enhance the overall taste and appeal of their products, but they've been busy removing artificial ones as consumers move toward more natural, healthy products. IFF plans to capitalize on that trend by buying a company focusing on natural colors, enzymes and antioxidants. It's a smart move for IFF as the deal further expands its portfolio while appearing to put it in a prime spot to meet the demand of food manufacturers and the people that buy their products. People may want to eat healthier but they also don't want to give up taste. IFF and Frutarom are potential beneficiaries of this.
According to Allied Market Research, the global flavors market for food and beverages was worth $12.4 billion in 2016 and projected to hit $18.1 billion by 2023, for a CAGR of 5.5% between 2017 and 2023. Natural ingredients, particularly recognizable and authentic flavors, are expected to play a large role in driving the flavors industry during the next few years.