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Business

Ashland to buy Pharmachem for $660 million

Deal will add specialized supplement and fragrance ingredients to Ashland’s food and personal care businesses

by Melody M. Bomgardner
April 19, 2017 | A version of this story appeared in Volume 95, Issue 17

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Credit: Shutterstock
Pharmachem’s Phase 2 Carb Controller, made from an extract of white kidney beans, is purported to reduce the caloric impact of starchy food.
The image shows a handful of dry, white kidney beans.
Credit: Shutterstock
Pharmachem’s Phase 2 Carb Controller, made from an extract of white kidney beans, is purported to reduce the caloric impact of starchy food.

Ashland has agreed to acquire New Jersey-based Pharmachem Laboratories, a manufacturer of supplements and specialty ingredients for the wellness and personal care industries, for $660 million in cash.

The deal will deepen Ashland’s move into consumer markets and shrink the industrial portion of its business. The company has been shifting focus since 2011, when it bought International Specialty Products (ISP). In 2014, Ashland sold its water technologies business. Ashland is also working to spin off Valvoline, its motor oil and oil change retail operation.

The acquisition of ISP brought structural ingredients such as emulsifiers and polymers for the personal care, detergents, and food and beverage markets, along with pharmaceutical excipients. Pharmachem will add specialty active ingredients such as botanical extracts and vitamins.

Pharmachem’s 2016 revenues were approximately $300 million. The company markets a number of branded supplements, including Phase 2 Carb Controller, an extract from white kidney beans said to reduce the caloric impact of starchy foods. Other Pharmachem supplements claim to block glucose, lower cholesterol, and decrease wrinkles.

In addition to branded products, Pharmachem supplies vitamins, minerals, amino acids, and botanical extracts to downstream supplement makers. The firm also extracts the fragrance ingredient sclareol from the clary sage plant and nicotine from tobacco. And it operates a custom processing and manufacturing business.

According to Ashland, the purchase will boost earnings as early as this year and bring roughly $10 million in cost synergies. It will shift the proportion of Ashland’s sales to consumer pharmaceutical markets from 36% to 42%.

In a note to clients, Longbow Research stock analyst Dmitry Silversteyn called the purchase of Pharmachem a solid strategic move, but he questioned the steep price Ashland agreed to pay. “Ashland management appears to have its work cut out to make the Pharmachem transaction value-creating,” he wrote.

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