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U.S. agribusiness ADM gobbles up Wild Flavors for $3 billion

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[July 07, 2014]  By Freya Berry and Arno Schuetze
 
 LONDON/FRANKFURT (Reuters) - U.S. agribusiness Archer Daniels Midland (ADM) <ADM.N> has agreed to buy Swiss-German natural ingredient company Wild Flavors for 2.3 billion euros ($3 billion) to enter the flavouring and the health-conscious food sectors.

ADM, one of the world's largest grain traders and a major food processor, said on Monday it would establish a new business unit called Wild Flavors and Specialty Ingredients and expected to complete the deal by the end of the year.

Wild Flavors - ADM's first venture into the flavours market - specializes in natural ingredients. The acquisition comes as consumers have been showing increasing appetite for foods made of only natural components.

Sources told Reuters in May that Illinois-based ADM was among private equity and strategic bidders for Wild Flavors, which sources said expected 2014 core earnings (EBITDA) of almost 140 million euros.

The transaction, which includes around 100 million euros of net debt, values Wild Flavors at a hefty multiple of 16.4 times its core earnings against a peer multiple of 11, according to Thomson Reuters data. ADM is targeting 100 million euros of cost savings by the third year of the acquisition.

"I think it will be very difficult for them to extract value at such a high valuation," said Evgenia Molotova, an analyst at Berenberg. "It's an ambitious target in terms of synergies."



Wild Flavors, headquartered in Zug with management offices in Heidelberg-Eppelheim, Germany, is the world's sixth-biggest flavour provider. Hans-Peter Wild, son of founder Rudolf Wild, owns 65 percent and private equity firm KKR <KKR.N> 35 percent. Wild is also the owner of a separate company that makes the drink Capri-Sun but is not part of the deal.

Sources previously told Reuters that other bidders included Japanese seasonings maker Ajinomoto <2802.T>, British food ingredients group Tate & Lyle <TATE.L>, Swiss scents and flavours firm Givaudan <GIVN.VX> and private equity group EQT.

With the purchase of Wild, which is currently advertising a new summer fruits range on its website, ADM will get access to a wide variety of flavours, seasonings and colours derived from natural sources and used in processed foods and drinks.

A source close to the deal said the bidding process was "a close race" between ADM and Ajinomoto.

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RECIPE FOR SUCCESS?

Almost 30 percent of new food manufacturing product launches over the past two years have been based on the health sector, Molotova said.

"The sector attracts a lot of M&A interest, because itís very cash-generative with stable earnings growth," she added.

"Ingredients is a very unconsolidated market, and there are a number of private companies that could be interesting."

In April, German scents and flavours group Symrise <SY1G.DE> bought France's natural ingredients firm Diana Group for 1.3 billion euros.

Since KKR's 2010 investment in Wild, the flavour maker has bought several companies including Cargill's [CARG.UL] juice blends business, mint oil maker A.M. Todd and natural extracts maker Alfrebro. Wild was founded in Heidelberg, Germany in 1931 as a producer of ingredients for non-alcoholic beverages.

"Together, ADM and Wild Flavors will create one of the leading flavor and specialty ingredient companies in the world, with sales approaching $2.5 billion and significant room to grow," ADM Chairman and Chief Executive Patricia Woertz said in a statement.

Barclays acted as financial adviser to ADM while Citi and Freshfields advised the sellside. Skadden, Arps, Slate, Meagher & Flom LLP acted as legal adviser to ADM. ($1 = 0.7345 Euros)

(Additional reporting by Supriya Kurane in Bangalore; Editing by Jane Baird)

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