Less than a year after buying Swiss company Emil Flachsmann, Frutarom is taking a further step in its policy of expansion. Today, the company announced a letter of intent for the acquisition of the fruit preparation activity of International Flavors and Fragrances (IFF).
Frutarom president Ori Yehudai refused to divulge the value at which the deal would take place, on the grounds that the workers committees in the factories in Europe still had to approve their share of the deal, and therefore full details could not be disclosed. Yehudai was only prepared to say that the deal was substantially larger than the Flachsmann deal, in which Frutarom bough the Swiss company, which had an annual sales turnover on the eve of the deal of $30 million, for $20 million.
The division Frutarom is buying in the current deal had sales of some $90 million last year, and, according to Yehdudai, it has a similar rate of profitability to that of Frutarom. Frutarom had an operating profit margin of 13% in 2003 and in the first quarter of 2004, so that it can be deduced that the division being bought generates an operating profit of $11-12 million a year.
On the basis of the Flachsmann deal, it can be estimated that the price tag is somewhere between $50 million and $100 million, but this is conjecture, on which Yehudai refuses to comment.
The deal is expected to close by the end of June. "We already have agreement on all the details, and the letter of intent comes after several months of negotiations, and it sets out the deal in full detail," Yehudai says.
The division of IFF being bought is the processing and production of fruits and fruit esences intended for use as flavorings in the food industry, chiefly for dairy products such as yogurts, and baked goods. The division has three factories in Europe: in France, Germany, and Switzerland. According to Yehudai, the seller will be responsible for closing the French factory and dismissing its 80 employees. After that, the division will pass into Frutarom's ownership. Frutarom intends to transfer the French factory's production to the Swiss and German factories, which between them employ some 200 people.
"As in the Flachsmann deal, it is important for us in this dealt o buy the company's R&D, it marketing channels, and its customer base, which includes the giants of the European food industry. We already work with some of the customers; other will be coming to us for the first time," says Yehudai.
Globes: From what you say, this is a very good division, that is an integral part of IFF, so why are they selling it?
Yehudai: "FFI is selling the activity because they want to focus solely on flavorings, and this division has many activities that go beyond that, such as fruit processing and natural products. They are not active in the areas of health foods and functional foods, areas that Frutarom has placed an emphasis on in recent years."
Published by Globes [online] - www.globes.co.il - on May 27, 2004