Frutarom’s President of Natural Solutions is confident for the future of his business unit following Frutarom’s US$7.1 billion acquisition by International Flavors & Fragrances (IFF) last week. This is despite the lack of apparent correlation between IFF’s densely flavor focused portfolio and this part of Frutarom’s business. Frutarom Natural Solutions, which offers Flavor & Color, Food Protection and Health Benefits, accounts for about 25 percent of Frutarom’s turnover.
In an interview, Yoni Glickman said: "It is clear from the conversations and public statements that IFF is very interested in our Natural Solutions business and specifically in our health and nutrition business. This gives them another opportunity to grow and expand into an area where many consumers are excited. Our ability to provide natural concepts for taste and health; whether the active ingredients, natural flavors or natural colors together in new delivery systems is an advantage for us."
Glickman states a belief that both companies are well aware of the direction of consumer trends. “Frutarom has been talking about being passionate about taste and health for 13 years. In 2005 we started talking about our new strategy. This is a culmination of what we have done over all of those years. We have been discussing and delivering to consumers this combination of taste & health, natural solutions and I think that IFF finds that very intriguing,” he adds.
For Glickman, the portfolios are highly complementary in geographical, customer and product terms, meaning that he is not overly concerned about anti-trust hurdles on the way to the deal being finalized.
Last week IFF agreed to acquire the Israeli flavors and ingredients company in a transaction valued at approximately US$7.1 billion, including the assumption of Frutarom’s net debt. By combining with Frutarom, IFF said it is seeking to accelerate its Vision 2020 strategy to create a global leader in natural taste, scent and nutrition, as 75 percent of Frutarom’s sales are natural. The move comes just several weeks after leading flavors and fragrances company Givaudan announced an agreement to acquire 40.6 percent of the shares of Naturex, the global leader in specialty plant-based natural ingredients. Givaudan has said that it is looking to take it over entirely.
“One of the big drivers [for the Frutarom takeover] is clearly other acquisitions that have gone on in this space recently, which have greatly accelerated the process,” notes Glickman. “We had several interested parties and since we are a public company we have to take those approaches seriously. At the end of the day, we are super happy that we ended up with IFF as the businesses are complementary.”
For Glickman, the reason for the complementary nature is the size of the customers being targeted. “If we look at our and IFF’s flavor businesses their focus, like the big guys, has been on the large multinationals. Our business has always been built around the small and medium, national or local customer base,” he says.
Glickman notes that 85 percent of their food business is in the world of small to medium and private label. “Again this is where our strategic focus has been,” Glickman continues. “We always said that there is no point for us to try to go head to head against the big four and that we carve out our niche. We did work in the developing world for a long time. Frutarom has a lot of strength in Eastern Europe, with ex-Soviet Union countries and have grown significantly in South America in recent years, partly through acquisitions. So these things are compatible business wise and geographically wise.”
Last year it became clear that the middle market had become particularly important to IFF too. At IFT 2017 in Las Vegas, they presented Tastepoint by IFF for the first time – a new company designed to service the dynamic middle-market customer in North America. Tastepoint by IFF represents the merger of David Michael & Co. and Ottens Flavors, two American companies with long histories in the industry.
For Glickman, the move for Frutarom allows IFF to take this strategy further afield too. “This gives them a much more global position or a more medium market in the rest of the world. This is the market which is growing, which has been our strategy for a lot of years and is a large part of the reason that we have grown above market average over many years, besides our acquisition strategy but also our organic growth. So from that point of view, the flavors business is very complimentary. We have a strong presence in the world of savory snack meat and fish, which is also complementary to IFF’s business and then on my side of the business [Natural Solutions], it is one of the important strategic drivers in the world of nutrition, health and natural products.”
The Frutarom we know today is itself is the result of a spate of small and medium acquisitions in recent years. For example, back in March, the company revealed an agreement for the purchase of a 70 percent stake in Argentinian companies Meroar SA and Meroaromas SA for US$11.2 million. It marked the second acquisition so far of 2018, following 20 acquisitions in the past two years and 37 acquisitions carried out by the Israel-based company since 2013. It also meant Frutarom's eighth acquisition in Latin America in the past six years
“We have been extremely busy in the M&A market in recent years, as well as organically. I think that we have built expertise into how to build businesses and product portfolios, value propositions and I’m sure that we will be able to work with our new colleagues at IFF to make this a very synergistic combination,” says Glickman.
The Natural Solutions chief claims that the experience that Frutarom has in integrating all of these small businesses will only help as it in itself becomes part of the larger IFF. “Frutarom Health is the result of several acquisitions. In just in the last three years, we have made five acquisitions in this space – most recently Enzymotec, where everything is integrated into our branding messaging.” He notes how many of the products presented at Vitafoods 2018 came about as the result of acquisitions made on the way, e.g., Taura Natural Ingredients and Enzymotec. “So we know how to integrate the products and people. In the last two years, we have done a lot of work in this field of natural solutions and we see it as a strategic way to grow our business and are glad that IFF also sees it as a strategic part of their business going forward,” he adds.
So what can we expect going forward as the deal moves through? “We are 6-9 months until the deal closes and need to get all the regulatory approvals and anti-trust clearance etc. I don’t think we can expect too many hurdles, but there is just a bureaucratic process that you need to go through in the different geographies,” he says. He is hopeful that competition concerns can be defeated due to the different geographic focuses of the companies and diverse product lines, however.
Up until the closing, they will operate as separate companies, he explains. “It is now going through the process of understanding each other and how to create more value, which both sides want to create more value for our customers regarding solutions, geographies,” Glickman notes how together they operate some 120 application labs around the world. “So all of that should be super exciting for customers. Some Frutarom solutions can be delivered to IFF customers and some of their great flavor technologies can be brought to our base,” he adds.
Beyond optimism about the IFF deal, Glickman is also confident on the future of the nutrition market as a whole. “We see dramatic growth in this space and our business has grown very strong in recent years, both through our acquisitions and organically. We are looking at bringing new delivery systems and we have some very interesting technologies that move away from the traditional pills and capsules to beverages, shots, to fruits replacing gummies,” he says.
“We think the market is going that way and we are bringing taste & health together and will offer exciting new delivery systems to consumers. We are about health – there is nothing wrong with pills and capsules, but they have different perceptions in the consumer mind, particularly for millennials. So I think that the move into other delivery systems is very important,” Glickman concludes.