Organic Ingredients Don't Come Cheap as Givaudan Deal Shows
(Bloomberg) -- Givaudan SA’s $1.6 billion acquisition of flavor-maker Naturex comes at a lofty valuation typically seen in the health-care and technology industries, showing that burgeoning consumer demand for natural and organic products is trickling into the supply chain.
The Swiss fragrance company agreed Monday to pay 135 euros a share, or a 42 percent premium to Naturex’s most recent closing price. The deal values the Avignon, France-based company at 20 to 22 times earnings, according to Vontobel analyst Jean-Philippe Bertschy.
“The move makes strategic sense for sure, as Givaudan is securing a leading position in naturals,” he said. The price, however, “seems very high.”
Givaudan Chief Executive Officer Gilles Andrier is having to swallow the cost of Naturex to bolster capacity in one of the fastest-growing segments in the personal-care and food industries, as consumers increasingly look to avoid artificial coloring and flavors. Valuations placed on flavor-and-fragrance companies have also soared as more chemical companies are drawn to this high-margin market. Givaudan’s largest purchase for a decade will bring it extracts from green tea to the recently discovered superfood derived from the leaves of the Moringa tree.
Valuations Creeping Up
The deal adds to growing evidence that the value of manufacturers in the sector is creeping up. Just over three years ago, rival Symrise AG bought a similar natural flavors business for about 14 times earnings, raising eyebrows at the time.
Naturex jumped 42 percent to a record of 134.40 euros at 3:41 p.m. in Paris. Shares of Givaudan rose 1.4 percent to 2,122 francs in Zurich.
Catering to those who want their flavors and fragrances from plants rather than from artificial chemicals is proving to be expensive. Symrise CEO Heinz-Juergen Bertram, who oversaw the purchase of Diana group in 2014, said March 14 that the company has the balance sheet to do large acquisitions, but pulled out of potential sales because multiples had risen to as high as 18 times earnings.
The Givaudan accord comes against a backdrop of multinational consumer companies snapping up more natural brands. Procter & Gamble Co. in November announced the acquisition of deodorant-maker Native to help it reach out to a “growing segment” of consumers who want products free from some synthetic ingredients or full of natural ones. That purchase will mean Native’s ‘Pumpkin Spice Latte’ deodorant sits alongside P&G’s traditional Old Spice and Gillette brands.
Unilever in December acquired Schmidt’s Naturals, offering deodorant variations including charcoal and magnesium, and lavender and sage. Financial terms of both deals weren’t disclosed.
Naturex has long been a coveted asset, attracting the interest of both private equity and rivals. A larger deal “was in the air for some time” and Naturex was a perennial name on on Givaudan’s short list, Bertschy said in a note.
In a first step, the Vernier-based company will acquire 40.6 percent of Naturex’s shares at 135 euros each, and then will begin a tender offer for the remaining stock at the same price, Givaudan said in its statement. The companies didn’t identify the sellers. Naturex declined to comment and a Givaudan representative wasn’t immediately available.
Board members Paul Lippens and Olivier Lippens own about 24 percent of Naturex and another director, Helene Martel Massignac, holds about 15 percent, according to data compiled by Bloomberg.
Naturex’s board and management support the transaction, according to Givaudan.
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