The Israeli firm has been snapping up businesses and incorporating them into its flavours and fine ingredients divisions over the past few years; it has expressed aim to goal of being a $1bn firm by 2012. In 2007 it acquired no less than seven businesses, but 2008 was regarded largely as a year of consolidation.
Nonetheless, a new deal so soon into the New Year comes as no surprise, as CEO Ori Yehudai signaled in August that he was already scanning the horizon for potential businesses.
Frutarom has agreed to pay around US$12m (c €9m at today’s exchange rates) for Oxford, which has a production and development plant in the north of England, not far from Frutarom’s existing base. Oxford’s sales in 2007 were around US14m (€10.5m), but operating profit has not been stated.
Synergies
Interest in Oxford stems from the business’ synergy in supplying specialist ingredients for the fragrance and flavours industry. It is said count major multinational firms in the sector amongst its “hundreds of clients”.
“The acquisition is expected to enhance the product offering of Frutarom’s Fine Ingredients division and its customer base around the world,” said the new owner-to-be.
The plan is to leverage synergies and cross-selling opportunities: Oxford’s portfolio of ingredients will be sold to Frutarom’s customer base and vice versa. In particular, this will bring new offerings on board for customers in the markets that Oxford has not covered in the past.
The acquisition is expected to close within weeks, at which time the management team will join Frutarom’s existing fine ingredients team.
Financial strength
Frutarom will finance the acquisition through a long-term bank loan. The company claims it has “a solid capital structure”, “ability to generate cash from operating activities”, and “available credit lines from leading banks in the world”.
This, it believes, will allow it to seize more opportunities for acquisitions thrown up by the global economic crisis.
Beside the direct contribution to sales from the new acquisitions, Frutarom is also able to exact operational synergies every time it brings a new business into the fold – and that results in savings.
For Q3, the more recently reported quarter, Frutarom’s sales grew by 36.9 per cent to US$120m (c €90m) and operating profit was reported at $15m (c €11m), up 79.6 per cent on the prior year period.
The company has also enjoyed an improvement in margins to 37.7 per cent, compared to 36 per cent for Q3 2007.