Niche firms are the new target for global players
Global firms with enterprise values often exceeding £1bn – such as Kerry Group, CSM and Cargill – are targeting companies with an enterprise value often lower than £150M to access niche sectors of the ingredients arena.
Between June 2011 and July 2013, 14 small and medium-sized businesses were acquired by organisations including Magnum Capital, Royal DSM and IK Investment for $104M (£62M), $634M (£379M) and $224M (£134M) respectively.
Upwards of 70 deals
The years between 2000 and 2007 saw 40 M&As by firms such as Kerry Group, which carried out upwards of 70 deals in the last 14 years.
Prime targets include manufacturers that specialise in niche areas, such as speciality proteins and probiotics. “These are often small to medium-sized enterprises based in developed countries, with highly skilled staff and a proven track record of innovation,” said Catalyst corporate finance director Simon Peacock.
Large companies would continue to buy niche suppliers with good records of innovation in their fields, he said. This would provide them with the opportunity to expand into new product categories and markets, where they would use their expertise to build customers and margin, Peacock added.
Those being acquired were benefitting from the capital investment supplied by their new owners. Small food ingredients businesses were plentiful in the sector, but lacked the finances to drive the business forward through research and development (R&D), he explained.
Success
Technology and the ability to invest in R&D is the driving force behind success in the sector, Peacock said. “The development of speciality ingredients, such as high- intensity sweeteners with margins of 815%, requires technical expertise and significant annual R&D investment,” he added.
Meanwhile, a shift in emphasis from sensory to functional ingredients for health and wellbeing will further drive M&A volumes in the coming years, “as large companies target innovative small players”, Peacock predicted.
