When news came out last June that Sanderson Farms was exploring a sale, the CEO of Wayne Farms wasted little time getting on the phone with his bosses to discuss whether they could make a bid to acquire the poultry giant.

They quickly agreed to make a move for their larger competitor. Sanderson had been on the radar as a possible acquisition target by Wayne and its parent agricultural-investment firm Continental Grain for a while because the two poultry companies are "very complementary to one another," said Clint Rivers, Wayne Farms' president and CEO.

"This is an opportunity that doesn't come along very often," said Rivers. "We wanted to grow [Wayne] as a business for a long time. And over the years have had many conversations about how we can do that."

Cargill and Continental Grain finally struck a deal in August to acquire Sanderson for $4.53 billion. The two buyers plan to combine Sanderson with the Continental Grain subsidiary to create a new privately held company with more than 25,000 employees and the ability to process more than 143 million pounds of ready-to-cook chicken each week, according to data provided by Watt Poultry. 

The companies are waiting on a decision by the Federal Trade Commission on whether it will approve the deal. Sanderson shareholders have already signed off on the transaction.

The combination of Wayne and Sanderson, which will be led by Rivers, brings together two companies with different customer bases that could benefit from each other's strengths. Sanderson has a huge presence in retail stores such as H-E-B, Walmart and Albertsons with its trays of fresh chicken. Wayne is largely focused on foodservice and restaurants including Chick-fil-A and Jack in the Box.

The new company is already looking for ways it could expand its portfolio.

For example, Rivers said executives have discussed the possibility of selling chicken raised without antibiotics in stores by tapping into Wayne's expertise in the area. Sanderson had remained steadfast in its use of antibiotics for its more than 70 years in business — a stark contrast with other poultry suppliers who have reduced or eliminated the practice amid growing concern by consumers over what goes into the food they eat.

For Cargill, which has been in discussions with Wayne for years on ways they could work together, the transaction fills a "miss in their portfolio" when it comes to a U.S. presence in chicken, Rivers said.

Mississippi-based Sanderson has long been a distant player to Tyson Foods and Pilgrim's Pride, which is majority owned by Brazilian meat giant JBS. Even after the merger, the new poultry company will remain the third-largest processor with about 15% share of U.S. chicken production, compared to 20% for Tyson and 16% for Pilgrim's Pride, according to Watt Poultry data shared by The Wall Street Journal.

Rivers said chicken demand is expected to remain elevated for the foreseeable future, giving Sanderson and Wayne "plenty of opportunities" to grow and removing any need to move into other categories. He said neither chicken processor has entered the plant-based space so far, and that it's "probably doubtful that we would get involved with it in the future." The new company also does not plan to expand into other meats such as beef and pork.

Rivers is unsurprisingly upbeat about the prospects of the new company.

Several restaurant chains have put in place "really aggressive growth plans" in 2022 and he is optimistic that Sanderson and Wayne will be able to supply them with more chicken. And as the U.S. economy reopens following COVID-19, consumption of poultry outside the home will likely rebound.

The new company also will benefit from the synergies extracted from the two businesses, including the adoption of best practices to save money and increase production. Together, these factors will trickle down to family farmers who will face more demand for their chickens. Many of its 20 fresh processing facilities could eventually contract with new producers in order to obtain enough supply of chickens, Rivers said. 

Still, Sanderson and Wayne are being affected by many of the same problems facing other companies throughout the U.S. when it comes to higher input costs tied to inflation and a tight labor market.

Rivers said Wayne and Sanderson are turning to automation in some of their plants to blunt the staffing challenges and increase efficiency. They also are making sure pay and benefits are competitive to hire and retain workers. Sanderson last month increased pay rates for its hourly employees, the third consecutive year the company has boosted wages.

"Labor is pretty tight out there so I don't see there being any decrease in workers in the facilities" following the merger, Rivers said. "I would imagine there's openings available today to increase the staffing and locations."

Hershey is buying fast-growing Dot’s Homestyle Pretzels and its Midwest co-manufacturer Pretzels Inc., for $1.2 billion — a combined deal that would be the second-largest deal in its history — in an effort to broaden the company's snacking portfolio and reach more consumers with a broader mix of salty and sweet offerings.

The purchase of premium pretzel brand Dot's, known for its bold flavors including Southwest and Honey Mustard, would further quicken Hershey's push into the permissible salty snack category, an area where the company has previously been underrepresented. Hershey would inherit a brand that has amassed a 9% market share in the $2 billion pretzel category in only five years. 

"This is definitely a growth play for us," Michele Buck, Hershey's CEO, said in an interview. "They really caught our attention because their growth has been tremendous in the past year."

For much of its 127-year history, Hershey has been known for its portfolio of confections, including Reese's, Almond Joy, Kisses and its iconic chocolate bar.

But under Buck's direction, Hershey has rapidly evolved into a "snacking powerhouse" by accelerating growth in the company's hugely profitable confectionery business through innovation and a deeper focus on low- or no-sugar, organic and bite-sized offerings. It has simultaneously moved methodically to become known for more than just its sweets by expanding into new snack offerings through a series of deals.

Since Buck took over in 2017, Hershey purchased Pirate's Booty and protein-bar maker One Brands, as well as invested in Quinn, a manufacturer of popcorn, chips and pretzels. The Pennsylvania-based company's largest acquisition came nine months after Buck took the helm when it bought Amplify, the parent of SkinnyPop popcorn for $1.6 billion. 

Buck said there are "amazing similarities" with SkinnyPop, already the fifth-largest brand in Hershey's portfolio. When SkinnyPop was acquired, it also had low household penetration, limited marketing, strong margins and an ability to add new pack sizes to appeal to consumers depending on where it was sold.

"We do think there are interesting parallels that give us a lot of confidence" in purchasing Dot's, she said.  

Dot's Pretzels was founded more than a decade ago in North Dakota by Dot Henke in her home kitchen as a special snack she shared with family, friends and neighbors to get through the winter. Today, the brand is the fastest-growing offering in the pretzel category, according to Hershey, responsible for 55% of the segment's growth during the past year.

Buck said Hershey is routinely tracking snack brands within categories they are targeting that could benefit from the CPG giant's innovation, marketing and brand building expertise to boost sales and household penetration.

Dot's has been on Hershey's radar for years, but it was only in the last two that the snack and sweets maker focused more attention on the upstart brand, Buck said. In addition to its favorable growth profile, she said Hershey was captivated by Dot's "intense flavor delivery" compared to other pretzels on the market that is reminiscent of what shoppers often experience in flavored chips.

Sales for Dot's, the third-largest pretzel brand by market share, is concentrated in the Central and Western U.S., and the brand has a strong presence in food, grocery and convenience stores. Much of its growth comes from word of mouth, and the brand has rarely spent money to market itself. Dot's also is popular with shoppers who try the product, with 56% returning to buy it again, according to Hershey. 

"We love to see a brand that has high repeat purchase, but low household penetration," Buck said. "If everybody who buys it is coming back to buy it again and again, but they just haven't reached enough consumers then it's ripe for significant expansion." 

Hershey also is separately purchasing Pretzels Inc. from private investment firm Peak Rock Capital, giving it access to three manufacturing locations in Indiana and Kansas used to make the salty snack for Dot's and other customers.

The decision to purchase Pretzels, along with the Dot's brand, will give Hershey more flexibility in increasing product output as demand for the snack grows. Buck said as the company conducted its due diligence on Dot's, it discovered the brand used a proprietary process to apply a special blend of flavor to the pretzel that Hershey wanted more control over — especially with the supply chain challenges currently impacting the U.S. economy.

"What we did here was focus equal attention on this wonderful, fast-growing unique pretzel brand but then also equal attention on making sure we would have the manufacturing know-how ... to be able to support the growth," Buck said.

Dot's and Pretzels had net sales of about $275 million for the 12 months ended September 2021, according to Hershey. The combination of these two acquisitions is expected to be slightly accretive to reported earnings per share in 2023 and adjusted earnings per share in 2022.

Dot's will play an important role in allowing Hershey to reach more consumers at more times of the day. Unlike chocolate, which is typically consumed alone or among just a few people, pretzels are popular at tailgates and parties where large groups gather. 

Even after the Dot's acquisition, Hershey said the company remains on the lookout for other brands, typically with $100 million or more in sales, that are differentiated enough in the marketplace and have promising growth prospects that it could buy. As shoppers turn to snacking more in place of a meal and consumer tastes change, the impetus is on companies such as Hershey to grow and expand. 

"The finish line is always moving," Buck said. "We see this opportunity for expansion, but we want to tackle one thing at a time and make sure we do it really well."

Coca-Cola has spent $5.6 billion to purchase the remaining 85% stake it doesn't currently own in sports drink maker BodyArmor.The acquisition is the largest ever for the 129-year-old company.

BodyArmor is currently the second-largest sports drink in the retail channel behind PepsiCo's Gatorade, with sales of more than $1.4 billion and posting growth of about 50%, according to figures cited by Coca-Cola. 

Coca-Cola acquired a 15% stake in BodyArmor in 2018 for an undisclosed amount, with an opportunity to fully acquire the sports drink brand in the future. Last year, Coca-Cola said it was interested in purchasing a controlling interest in the brand after filing a pre-acquisition notice with the Federal Trade Commission.

When Coca-Cola first invested in BodyArmor four years ago, the upstart had about $250 million in sales. Today, that figure has soared to more than $1 billion as the fast-growing, healthier-positioned sports drink has caught on with consumers through its use of coconut water, low sodium and high potassium levels, absence of artificial colors and use of sugar in place of high fructose corn syrup. 

Coca-Cola's acquisition of the remaining stake in BodyArmor has been in the works for months, and it fits within a broader strategy put in place by CEO James Quincey to rebuild the Atlanta-based CPG into a "total beverage company."

Since Quincey took over in May 2017, Cola-Cola has acquired Topo Chico premium sparkling mineral water, purchased the remaining stake in dairy brand Fairlife and dolled out $5.1 billion to add Costa Coffee, which until now had been its largest purchase. At the same time, it has sold or ended production of Zico coconut water, Tab soda and Odwalla juice as part of a wider plan to eliminate an estimated 200 brands globally to focus on more profitable, faster-growing products coming out of the pandemic. 

"What it means to be a total beverage company is always going to evolve because people's tastes and needs will continue to evolve," Quincey told Food Dive in 2019. "Five to 10 years from now, many brands may be different or might not exist. New ones will take their place. This journey doesn't end."

By acquiring full ownership of BodyArmor, Coca-Cola instantly becomes a more formidable player in the sports drink space, where PepsiCo's Gatorade brand holds about 70% market share. Coca-Cola can use its name innovation, market heft with retailers and global distribution to better position BodyArmor to try to cut in that lead. BodyArmor currently has an 18% market share with Coca-Cola's Powerade third at 13%, according to data cited by The Wall Street Journal.

As part of the deal, BodyArmor Co-founder Mike Repole and President Brent Hastie have agreed to remain with the company. Repole also will collaborate on Coca-Cola's still beverages portfolio. 

Coca-Cola's relationship with the BodyArmor co-founder goes back several years. Repole co-founded Glaceau, the company behind the Vitaminwater and Smartwater brands, which Coca-Cola snapped up for $4.1 billion in 2007. Given Repole's history of churning out several popular better-for-you offerings, his insight could be especially valuable going forward for Coca-Cola as consumers drink more of these beverages.

BodyArmor not only gives Coca-Cola a better-for-you sports drink, but also a hydration beverage for consumers on the go. The brand also has a roster of high-profile athletes tied to it — including baseball player Mike Trout — giving additional credibility and boosting its reach among millennials and other consumers concerned about what they drink. 

Coca-Cola said BodyArmor will be managed as a separate business unit in North America and will continue to be based in New York. 

Fresh off its first purchase in four years, Hain Celestial is "actively looking for other acquisitions," the CEO of the organic and natural foods maker said.

Mark Schiller has overseen the manufacturer of Celestial teas and Sensible Portions Garden Veggie Straws since November 2018, and has spent much of his tenure divesting brands. His goal: Refocus the sprawling food and personal care giant, which at one point was "hemorrhaging cash" and involved in businesses that didn't fit in its portfolio, including slaughtering turkeys and selling fresh fruit. 

But in December, Hain spent nearly $260 million for That's How We Roll, the producer of Thinsters cookies and cheese snack brand ParmCrisps. The acquisitions are likely to be the beginning of an active period of deal-making for Hain, with the company prioritizing the snack, plant-based meat and non-dairy beverage segments.

"We're going to continue to look at other acquisitions," Schiller said in an interview. "We've got a lot of firepower."

The former Pinnacle Foods executive said Hain has roughly $1 billion in cash on its balance sheet and money it could borrow to fund more acquisitions. Despite the financial heft at its disposal, Schiller said he would likely target smaller companies with sales between $50 million and $150 million. 

Such companies, he said, are often at a pivotal point in their development where they need access to capital to scale their businesses and may be more interested in selling to help them grow.

The competition for assets, and high price tags being demanded by potential targets, has created "valuation targets that are pretty high," Schiller said.

But for Hain, which posted $1.97 billion in net sales in its 2021 fiscal year, finding the right brands at an attractive price could help immediately grow its business. Hain also has found its size as a mid-cap company plays to its advantage. Acquisitions that may be a good strategic fit for Hain might not pique the interest of a bigger CPG that would need to invest more time and money to make the brands big enough to meaningfully impact its bottom line.

“By the time we get these things up to a half a billion in sales, they're too big for the big guys to knock off at that point, so I really liked our position," Schiller said. "Obviously, we've got a lot of work to do to make sure all these things are successful, but we're in a very unique space in the market given our size and our unique focus on health and wellness.”

Schiller underscored that Hain is looking for high-growth brands that complement its existing businesses, allowing it to tap into synergies between its food offerings. It's also looking for brands that help it enter new categories. The purchase of ParmCrisps, for example, gets Hain into snack mixes, while the brand's high-protein, low-carb attributes enable it to compete with bars and beef jerky popular with consumers.

"I've got enough small brands that are projects. I don't need another one," he said. "I want to buy something that's got a growth trajectory in front of it.” 

The food and beverage space has been a hotbed of M&A activity during the past few years. While CPGs have abandoned the multibillion-dollar deals popular just a few years ago, smaller bolt-on purchases are now in vogue as companies expedite their presence in high-growth segments such as snacks or better-for-you offerings. 

During the past year and a half, Mondelēz International purchased Hu, a maker of premium snacks and chocolates made from simple ingredients. And Hershey announced plans to buy fast-growing Dot’s Homestyle Pretzels and its Midwest co-manufacturer Pretzels Inc. for $1.2 billion — a combined deal that would be the second-largest acquisition in its nearly 130-year history.

As Hain looks to add to its business, the company is eyeing a more measured approach compared to its last acquisition binge. For much of its existence before Schiller took the helm, Hain's strategy involved rolling up brands — at one point it made 55 acquisitions within one 25-year period. While the growth-at-any-cost mentality boosted sales, it also created a group of unrelated brands in 37 different categories and a portfolio with little coherence. 

Even as Hain looks for companies to acquire, Schiller said it has another $100 million of businesses in its portfolio it wants to divest. 

Hain will "likely" exit its personal care business that includes shampoos, sunscreens, cleansers and lotions in the future, he added. The segment, which makes up less than 10% of its sales, remains a high-growth business with strong margins so if any buyer "wants it, they're going to have to pay for it," Schiller said.

"There's no synergies between a personal care business and a food business," he said. "And so while we like it, and it's a great business and has a lot of growth potential, it's complexity in a company that's striving for simplicity." 

JBS is entering the cultivated meat space through the acquisition of Spain's BioTech Foods and a $100 million investment in facilities. The global meat giant's funds will build both a new production plant in Spain for BioTech Foods and a cultivated meat research and development center in its home country of Brazil. 

The Brazilian R&D center is slated to open in 2022. It will be led by two of the country's top specialists in bioengineering, and in a second phase, will feature a 10,000-square-meter (32,808-square-foot) plant. It will employ about 25 researchers and work to develop new technologies for the industry.

Many multinational food companies have partnered with cell-based meat companies — including Nestlé, Nomad Foods and Mitsubishi Corporation — but this is the first acquisition by Big Food in the space.

As the cultivated meat space continues to grow and develop, it makes sense that more traditional meat companies would want to get involved. And JBS, the world's largest meat company, is leading the way.

"This acquisition strengthens our strategy of innovation, from how we develop new products to how we commercialize them, to address the growing global demand for food," Gilberto Tomazoni, global JBS CEO, said in a statement. "Combining technological know-how with our production capacity, we will be in a position to accelerate the development of the cultivated protein market."

JBS has a huge reach, with production units and offices on nearly all continents and products in 190 countries worldwide. The company has gotten deeply involved in plant-based meat, starting the Planterra division in the United States and the Incrível line in Brazil. JBS also acquired Vivera, Europe's third largest plant-based food producer, in April. Cell-based meat is the next frontier for the company to tackle.

BioTech Foods, based in San Sebastián, Spain, was founded in 2017. The company, which is working on a cell-based pork product called Ethicameat, is the lead company in a European Union project called Meat4All. BioTech Foods received part of a 2.7 million euro (about $3 million) government grant for this project, which has the aim of scaling and improving cell-based meat production in Europe to work toward eventual commercialization. The company also is leading a 5.2 million euro (about $6 million) project funded by the Spanish government researching cell-based sustainable products with health benefits, including cancer prevention. As long as the sale is approved by authorities, JBS will have a majority stake in BioTech Foods.

BioTech Foods currently plans to reach commercial production of its products in mid-2024, according to the release from JBS. This production milestone will be helped by the new pilot plant funded by JBS, which will cost $41 million. JBS said it will have access to BioTech's technology and protein production capabilities, while the meat giant will provide the industrial processing capacity, marketing structure and sales channels to bring products to market.

JBS's home country of Brazil is a center of technology, research and food production for South America. However, there are currently no large cell-based meat startups in the country, though Brazil's BRF signed a memorandum of understanding with Israeli cell-based maker Aleph Farms in March to eventually bring Aleph's products to Brazilian consumers.

A large R&D center will help not only establish the industry in the South American nation, but it can also make it a hub for cell-based product development. After all, Brazil has one of the world's highest per capita rates of meat consumption. There is a strong appetite for meat products in general, and cell-based options are expected to become a large portion of what the world eats in the not-so-distant future. A recent report from strategy and management consulting firm Kearney predicted that by 2040, 35% of all meat consumed worldwide will be cell-based.

Monster Beverage has acquired Canarchy Craft Brewery Collective, a craft beer and hard seltzer company, for $330 million in cash, the company said in a statement. The energy drink maker said the deal will provide Monster with a "springboard" to enter the alcoholic beverage space.

Canarchy will function independently, retaining its own organizational structure and team, led by its current CEO Tony Short. The decision by Monster to enter beer and hard seltzer comes as more nonalcoholic beverage companies enter the category in an effort to cover more drinking occasions and spur growth.

Monster rose to prominence to become a dominant player in the energy drink space, but now the $50 billion beverage giant is hoping to replicate its success in alcohol. 

"This transaction provides us with a springboard from which to enter the alcoholic beverage sector,” said Hilton Schlosberg, Monster’s vice chairman and co-CEO. “The acquisition will provide us with a fully in-place infrastructure, including people, distribution and licenses, along with alcoholic beverage development expertise and manufacturing capabilities in this industry.”

The transaction will immediately bring beer and hard seltzer from brands including Cigar City, Oskar Blues, Deep Ellum, Perrin Brewing, Squatters and Wasatch to the Monster beverage portfolio. The transaction does not include Canarchy’s stand-alone restaurants.

The deal comes at a time when Monster itself has been rumored as an acquisition target.

In November, Bloomberg reported Monster Beverage was exploring a deal with Modelo and Corona brewer Constellation Brands. Today's decision to spend more than $300 million to buy Canarchy doesn't necessarily preclude such a deal from happening. But the fact that Monster is buying a company on its own, and choosing to do it in alcohol, may mean any combination with Constellation is dead, at least for the foreseeable future. Monster has found its own way to enter alcohol and stay independent at the same time.

For years, Wall Street has speculated Coca-Cola could buy Monster. The beverage giant purchased a 16.7% stake in Monster in 2015 and agreed to distribute its energy drinks in the U.S. and Canada. Monster noted the Canarchy deal comes with all the infrastructure and necessary licenses, so it appears unlikely that Coke would handle alcohol for Monster.

Canarchy is an interesting move for Monster because it is entering alcohol through craft beer and hard seltzer, a pair of maturing yet popular categories where consumers have countless options to choose from. While at one point there was speculation that Monster would develop its own hard seltzer, the company obviously sees a better path forward in alcohol through purchasing existing brands where it can benefit from their expertise rather than venturing into the area on its own, even with the potential to use the name recognition of its signature energy drink. 

It's possible Monster could somehow tap into the expertise of Oskar Blues' work in hard seltzer, for example, and bring that insight to its own energy drinks. The deal also could mark the first step by Monster to become an even bigger player in alcohol, putting it head-to-head with industry giants AB InBev and Molson Coors.

Monster has been exploring other avenues for growth in recent years. It released the first 100% vegan energy drink called Java Monster Farmer's Oats in 2019 that is made with oat milk, coffee and Monster's energy blend that contains taurine, ginseng and guarana. It also reportedly has been considering a move into cannabis. But Canarchy is its biggest bet yet to show it's more than just an energy drinks company.

Monster is the latest nonalcoholic beverage company to enter alcohol, although others have done so through partnership deals in an effort to generate growth at their businesses.

Coca-Cola teamed up with Molson Coors to create Topo Chico Hard Seltzer, and Constellation is working with the beverage giant to launch ready-to-drink cocktails through its Fresca brand. PepsiCo and Sam Adams maker Boston Beer followed last summer with plans to launch a hard offering under the Mtn Dew brand.

 

In 2021, science and creativity officially met.

The $26.2 billion megamerger of International Flavors & Fragrances and DuPont Nutrition and Biosciences, officially completed on Feb. 1, 2021, solidifies IFF's place as one of the biggest players in the ingredients space. And the revamped company's brand identity, "Where science and creativity meet," wraps up how IFF hopes to differentiate itself in the broader industry.

The merger brings together IFF's expertise in food flavors and fragrances and the former DuPont division's leading positions in probiotics, enzymes and food protection. The combined company has estimated 2020 pro forma revenue of more than $11 billion, and earnings before tax, interest, depreciation and amortization of approximately $2.5 billion, excluding synergies, according to a company statement. IFF says the combined company has leadership positions in taste, texture, scent, nutrition, enzymes, cultures, soy proteins and probiotics. 

“Strategically, the new IFF is set to truly redefine our industry," Andreas Fibig, then-IFF chairman and CEO, said in a presentation to investors in January 2021. "We will be a new company for a new era. We are merging the depth and breadth of our partnerships with our customers at a time when consumers are driving massive change to the entire CPG industry. Execution, which is our singular focus now, will drive significant financial benefits for shareholders." 

The deal transforms both IFF and the whole ingredients business, which has been an active center for M&A in the last few years. IFF has stood out as a serial acquirer — buying flavors and natural ingredients powerhouse Frutarom in 2018 for $7.1 billion, acquiring Columbia Phytotechnology, also known as PowderPure, for an undisclosed amount in 2017, and flavor experts David Michael & Co. in 2016 and Ottens Flavors in 2015.

But IFF isn't the only ingredients company active on the M&A front. Kerry has made several big deals in recent years — including plant protein provider Pevesa Biotech in 2020, clean label companies IsoAge Technologies and Biosecur lab in late 2019 and probiotics leader Ganeden in 2017. In 2020, Ingredion bought a controlling stake in stevia pioneer PureCircle and fully acquired plant-based ingredients company Verdient Foods. Givaudan spent $1.6 billion to acquire flavor maker Naturex in 2018. And in the waning days of 2020, McCormick bought clean and natural flavors provider FONA International for $710 million. 

Brian Todd, an independent food industry consultant, said all of this dealmaking is logical in the ingredients business. To be a leader, companies want to provide a full portfolio of options in several disciplines. And with a small handful of megaplayers in the ingredients business — IFF was among them before the merger — there are a lot of deals always going forward.

"They're growing through acquisition, which is much easier to do than doing it through innovation, often because you're buying technology ... and innovative companies along the way," Todd said.

As long as the integration can happen quickly, analysts said the future for the bigger IFF — and the rest of the ingredients industry — looks bright.

An ingredient megaplayer

The new IFF is big, with more than 45,000 global customers, the company estimated last month. But it doesn't just serve big players. Almost half of its business is with small, medium and private label customers.

Brant Cash, a managing director at Harris Williams, a global investment bank specializing in M&A advisory services, said in general, companies in the ingredients business are structuring themselves to provide all needed solutions to CPG companies. Simple formulation changes aren't always that simple, and changing a sweetener or coloring ingredient often means more things need to be tweaked to maintain the look, taste and mouthfeel of an existing product.

And with the pandemic dampening new product launches, Cash said manufacturers may prefer a single company to find all of the ingredients and expertise they need for these changes and innovations. 

"IFF sees that trend happening in their business and wants to be that more complete one-stop solution to these customers," Cash said. 

Howard Dorman, partner and practice leader for the food and beverage sector at Mazars, said that there is a great deal of capital in the ingredients market, as well as a desire for vertical integration. The pandemic has shown that there are limited paths to get ingredients. And environmental demands from both consumers and manufacturers are driving the need to improve the ingredient supply chain.

"I'm going to bring the formulator ... and the ingredients," Dorman said, speaking from the perspective of the ingredients company. "And we can have cost synergy savings and be able to provide a lot of connections and data points."

In his presentation in January 2021, Fibig touted the integration the merger is bringing IFF. As consumers look for plant protein, better snacks, safer food, sustainable waste solutions, and nonfood considerations like hygiene, the blended company can bring manufacturers all those things.

"Where we will grow is on the strength of how we put together the pieces of our platform to create value through product formulation," Fibig said. "[With] the strengths of integrated solutions, we can drive broad value for customers with improved speed to market, clear control of product development — so the value chain and compelling cost efficiency of a single point partner, from concept to delivering. This is where the future of our industry lies."

Integration challenges

A speedy integration is critical to this merger being able to work well right out of the gate. After a year of pandemic-related restrictions, consumers are hungry for innovative products. Cash said manufacturers are probably ready to turn to companies like IFF to help them quickly produce on-trend products using the latest ingredients to provide flavor, function and nutritional benefits. 

"One of the big advantages that you can have in the marketplace dealing with customers is speed to market," Cash said. "When you talk to people in the industry, it's kind of like thinking about buying a car. By the time you've gone and test drove the second or maybe the third car, you've kind of already decided which one you want. And it's similar with tasting flavors. By the time you've tasted the second or third thing, you've kind of already chosen one in your brain. And so being fast to the customer with a sample, and getting them the flavor that they're looking for, and just being quick is super critical."

Cash said if the integration goes slowly and all of the divisions of the larger IFF aren't moving together quickly, it could result in lost business as customers seek solutions at competitors that can be more nimble.

IFF knows the challenges of integration. It had issues bringing Frutarom into its fold, discovering in 2019 that two of the company's operations in Russia and Ukraine may have paid bribes to customs officials and given kickbacks to distributors. Many former Frutarom management officials left IFF a year after the acquisition, Calcalist reported, and several customers of former Frutarom subsidiaries took their business elsewhere. IFF is currently battling a federal class action suit from investors who claim the company should have disclosed the issues with Frutarom earlier.

Todd said the bumpy road to integrate Frutarom has likely helped IFF and DuPont make a smoother integration plan.

"They've got a kind of a roadmap now of what to watch for and what the signals might be, so I think, in my estimation, they will be better prepared," Todd said. "But this is a huge deal, so I'm sure there are still a lot of unknowns since they started opening books and turning pages and finding something out that perhaps they didn't have all the details on."

Rustom Jilla, then-executive vice president and CFO of IFF, said in the January 2021 presentation that the merger is expected to drive $400 million in revenue synergies by 2024. Half of those savings are expected to come through procurement. Jilla said IFF and the former DuPont division have been working on the integration plan for a year, both internally and with outside advisors. The full integration, he said, should take 12 to 18 months. IFF says it is relying on previous experience to ensure a smooth integration, and has realistic expectations. But the company has also appointed a lead executive to focus on cost synergy execution and realization.

What comes next?

Executives said the new IFF expects to do a great deal of R&D work, create new ingredients, and craft comprehensive plans for all of its divisions to improve products.

In the January 2021 presentation, Jilla said IFF worked with more than 100 stakeholders to consider how to best take advantage of the company's new synergies. They prioritized 40 high-value projects that the larger company will be able to take on, including better-tasting functional beverages, meat alternatives with less salt and a better texture, and using new proteins for better-performing plant-based frozen desserts.

While IFF will now have wide-ranging capabilities, Dorman said there is still ample room in ingredients for innovation from startups and smaller players. IFF is a behemoth, and a smaller company that is well run and produces a vital ingredient could still easily have an EBITDA that mirrors that of IFF. While a large company has deep resources, smaller players have their own ideas and can be much more nimble in terms of development and commercialization.

"There's always gonna be room," Dorman said. "And if someone is starting up a new ingredient or flavoring company, obviously they're coming from somewhere with some background to do it, and we'll still encourage them to do it."

Existing smaller players may not lose many clients to the new larger IFF either, Cash said.

"Customer relationships are very sticky. In the food ingredient industry, it's so rare for a customer to switch suppliers once they've established what flavor or what type of product they're selling. They just don't switch," Cash said.

Because there is so much to do in terms of integration, analysts said it's unlikely IFF will do many more deals for a little while. But that doesn't mean the hot streak of deals in the ingredients sector will end.

"There's just so much entrepreneurial and innovative spirit out there right now, I think the ingredient companies are in a good position," Todd said. "Moving forward, I don't think we're going to see any downturn in that business in the near future, or even the far future."