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DSM Strengthens Human Nutrition Business

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DSM Strengthens Human Nutrition Business

DSM Strengthens Human Nutrition Business
November 09
12:47 2012

Royal DSM, the global life sciences and materials sciences company, has agreed to acquire US-based food ingredients producer Fortitech, in an all cash transaction for a total enterprise value of $634 million (Eur495 million). Subject to customary conditions, the transaction is expected to close before the end of the year.

Fortitech, a privately held company, is a leader in customised, value added food ingredient blends for food and beverage, infant nutrition and dietary supplements industries. The company has approximately 520 employees. Fortitech has six production sites located inNew York (USA), California (USA), Campinas (Brazil), Kuala Lumpur (Malaysia), Gastrup (Denmark) and Poznan(Poland), with sales offices in China and Mexico.

Net sales for 2013 are expected to be about $270 million with an EBITDA of about $70 million, including synergies and excluding exceptional items, resulting in an EV/EBITDA multiple of about 9. DSM has identified attractive cost synergies at about 10% of net sales, which will be fully realised by 2015. In addition, one-time synergies – primarily capital expenditure avoidance – are estimated at $70 million. DSM expects the transaction to be EPS accretive in the first year after closing.

The acquisition will accelerate DSM’s strategy to become a full solutions provider in food ingredient blends.

Customers especially in the food and beverage industry are increasingly looking for solutions providers offering a broad range of food ingredient blends that cover a more comprehensive portfolio of ingredients, sometimes even requesting the complete formula, for a given product. DSM’s Human Nutrition and Health (HNH) premix business is a channel to market primarily for its own nutritional ingredients. Fortitech offers customised solutions in blends with a highly responsive and flexible customer service model. Fortitech works with a broad range of externally sourced nutrients and food ingredients including vitamins, minerals, nucleotides, amino acids, herb extracts, nutraceuticals, flavors, seasonings, colours, caffeine, proteins, sweeteners, carbohydrates and enzymes.

Demand for food ingredient blends has grown rapidly over the past 15 years as food and beverage, infant formula and dietary supplement companies transition from in-house production to external supply partners with a number of benefits, including lower quality risk, increased output and accelerated product development. Future global food ingredient blends industry growth is expected to continue in the high single digits on an annual basis driven by high growth economies and increased outsourcing of the blending.

With the acquisition of Fortitech DSM has now announced over Eur2.8 billion worth of growth enhancing acquisitions in just over two years, of which Eur2.4 billion is in its Nutrition cluster. After completion of the announced acquisitions DSM’s Nutrition cluster will on a pro forma basis realise Eur4.6 billion in net sales with an EBITDA-margin target in the range of 20-23% on an annual basis, resulting in stronger and more stable growth and profitability for DSM overall. These acquisitions form an integral part of DSM’s strategy for its Nutrition cluster and will contribute to the current and future growth of DSM’s attractive portfolio in health, nutrition and materials.

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