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Business

ADM Enters Natural Flavors Business With $3.1 Billion Purchase Of Wild Flavors

Food Specialties: Commodities giant says the business will boost profit margins, stabilize volatile earnings

by Melody M. Bomgardner
July 14, 2014 | A version of this story appeared in Volume 92, Issue 28

The agricultural ingredients giant Archer Daniels Midland will acquire privately held Wild Flavors for $3.1 billion. ADM says Wild’s natural flavors business will add high-demand specialties to its portfolio, resulting in higher and more stable earnings. But ADM is paying a steep price, analysts caution, and will need to run the business very well to benefit from the buy.

FLAVOR GIANTS
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Credit: Companies, Leffingwell & Associates
Privately held Wild is the sixth-largest flavor and fragrance firm. a Estimate. IFF = International Flavors & Fragrances. SOURCES: Companies, Leffingwell & Associates
Bar graph shows how privately held Wild Flavors stacks up against other flavor and fragrance firms.
Credit: Companies, Leffingwell & Associates
Privately held Wild is the sixth-largest flavor and fragrance firm. a Estimate. IFF = International Flavors & Fragrances. SOURCES: Companies, Leffingwell & Associates

Based in Switzerland, Wild is majority owned by Hans-Peter Wild, son of founder Rudolf Wild. Private equity firm Kohlberg Kravis Roberts has held a stake in the company since 2010. Wild, which is the world’s sixth-largest flavor and fragrance firm, is best known for its lines of naturally derived flavors and colors used in foods and beverages.

With the acquisition, ADM will gain 2,300 employees, including 418 scientists and applications specialists. Wild runs 28 research centers and 16 production facilities. Geographically, the two firms complement each other; ADM sells more in the U.S. whereas Wild is stronger in Europe, said ADM CEO Patricia A. Woertz in a conference call with analysts.

Wild’s flavors also will mesh with ADM specialty ingredients such as proteins, fiber, vitamins, and texturizers. “But we haven’t yet offered taste, and taste is king,” Woertz said. “It remains the biggest driver of food and beverage buying decisions, even more than price.” With more sales coming from specialties, she added, ADM will achieve wider profit margins, faster revenue growth, and a less cyclical environment.

The move into food specialties echoes recent deals, both large and small, in the chemical sector. DuPont paid a hefty $6.3 billion for ingredients firm Danisco in 2011. And FMC acquired South Pole and Phytone, both producers of natural food colorants, in 2011 and 2012, respectively.

ADM will have to deliver on its promise of $130 million in annual postacquisition benefits to justify the purchase’s steep price tag, according to Ann Duignan, a stock analyst at JPMorgan. The deal is expected to close by the end of 2014.

Although the flavors industry is a steady one with high profit margins, particularly for natural ingredients, “selling flavors is a whole lot different than selling corn sweetener,” warns John C. Leffingwell of flavor and fragrance consulting firm Leffingwell & Associates. “You need a lot of personal relationships between the flavor firm and its customers.”

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