MARKET OVERVIEW

An ever-growing global population and

new customer needs are factors that drive

companies in the food & beverage industry

towards consolidation. The food ingredient

sector is also continuing to move in this

direction, with M&A operations remaining

buoyant in the first nine months of 2019.

(CONTINUED ON NEXT PAGE)

FOOD FLAVOR AT A GLANCE (pg.2)A brief overview of the food flavor industry today which looks at key features including growth projection, customers and end markets, raw materials and the leading players worldwide.

SELECTED LISTED COMPANIES AND VALUATION TRENDS (pg.4)A look at public companies in the food ingredients industry that have consistently outperformed the FTSE food producers index in recent times. This trend is expected to continue in the coming years.

M&A ACTIVITY: RECENT PRIVATE TRANSACTIONS (pg.7)A focus on M&A private transactions in the food ingredients sector, with an analysis of the most relevant deals, the countries involved and transaction size ranges.

“Studying shifts in society and consumer behavior

is key for companies that want to be successful.

Those that can grasp these changes will certainly

be able to take advantage of new opportunities

offered by the market.”

MICHELE MANETTIOAKLINSʼ FOOD INGREDIENTS SPECIALIST

Global trends and transactions in today’s food flavor industrySPOT ON | FOOD INGREDIENTS | OCTOBER 2019

2OAKLINS – Spot On · Food Ingredients · October 2019

FOOD FLAVOR AT A GLANCE

Market size: The food flavors market was valued at US$12.94 billion in 2017; it is projected to grow at a CAGR of 4.8% to reach US$17.10 billion by 2023.

Customer base: Flavors are typically sold to food and beverage producers (e.g. Nestlé, Danone, Unilever, PepsiCo, Mondelez, etc.). End markets include dairy, bakery, confectionery, savory, beverages and pharmaceuticals.

Main barriers to entry: These are wide-ranging and include R&D critical mass, inclusion on top customer core lists, regional dominance, global presence, access to raw materials, increased regulatory environment, ability to offer full product traceability and, to a lesser extent, integration with customer ERP systems.

Input costs: Raw materials typically represent approximately 40% of flavor companiesʼ sales and fall into two spheres: oil-based raw materials and natural raw materials. While oil-based materials are widely available, the market for natural raw materials has some peculiarities. This is due mainly to their limited supply (some can only be grown in certain regions and can also suffer from climatic/disease stress) and the strong demand for such products (as a result of an increased appetite for natural ingredients). As a consequence, natural raw material prices can experience significant volatility.

Small impact on COGS, a big influence on end consumers: Food flavors represent a tiny proportion of the end product COGS, usually 0.3–2%. However, these ingredients exert significant influence on end consumer repurchase decisions.

Market overview

Flavors market share by value (2016)

19%

16%

12%10%

6%

5%

5%3%

8%

8%

8%

GivaudanIFFFirmenichKerrySymriseWild FlavorsTakasagoSensientMane FilsT. HasegawaOthers

Source: DB

3OAKLINS – Spot On · Food Ingredients · October 2019

Source: Givaudan annual report

Market overview

Global megatrends and their main impacts on the flavors industry

IMPLICATIONS

IMPACTS ON FLAVORS SECTOR

MEGATRENDS AFFECTING THE FLAVORS INDUSTRY

A growing customer

base…

…living longer and more responsible

lives...

…in an increasingly interconnected

world

ͽ Growing population and wealth in high-growth markets

ͽ Shift from rural to urban areas ͽ Increased disposable incomes

ͽ Rise in spending on processed and ready-made foods with increase in disposable income

ͽ Local and regional brands gaining relevance

ͽ Aging population ͽ Being overweight or obese

more widespread ͽ Consumers demanding

transparency

ͽ Demand for tasty products with reduced fat, sugar and salt content

ͽ Increased focus on organic, natural ingredients, natural flavors

ͽ Interconnectivity and faster exchange of information

ͽ Social media transports new trends faster and wider

ͽ Increased consumer empowerment

ͽ Reduced time-to-market for new products

ͽ Increased demand for convenience food

4OAKLINS – Spot On · Food Ingredients · October 2019

Selected listed companiesBetween February and September 2019, the average adjusted capitalization of the 38 companies listed below grew from US$4.849m to US$5.041m. In terms of multiples, in February 2019 the adjusted average of the EV/EBITDA and EV/Sales multiples of food ingredients (FI) listed companies stood at 13.5x and 2.2x respectively, while in September 2019 the EV/EBITDA and EV/Sales market multiples of FI listed companies (adjusted average) were 13.1x and 2.3x.

Company CountryMarket cap

(US$m)EV/Sales(US$m)

EV/EBITDA (US$m)

Givaudan S.A. 25,705 4.8x 25.2x

Associated British Foods plc 22,804 1.1x 8.9x

McCormick & Company, Incorporated 21,232 4.7x 23.3x

Koninklijke DSM N.V. 20,242 2.0x 12.6x

Kerry Group plc 20,234 2.9x 20.4x

Symrise AG 13,091 3.9x 19.4x

International Flavors & Fragrances Inc. 12,831 3.7x 16.9x

Novozymes A/S 12,132 5.8x 16.6x

Solvay S.A. 10,902 1.2x 6.4x

Chr. Hansen Holding A/S 11,061 9.2x 27.1x

Ingredion Incorporated 5,476 1.3x 8.0x

AAK AB (publ.) 4,817 1.7x 18.3x

Tate & Lyle plc 4,318 1.3x 8.1x

Glanbia plc 3,702 1.5x 13.3x

Angel Yeast Co., Ltd. 3,246 3.6x 17.2x

Sensient Technologies Corporation 2,915 2.6x 14.5x

MeiHua Holdings Group Co., Ltd. 1,890 1.3x 6.1x

Corbion N.V. 1,690 1.9x 13.7x

5OAKLINS – Spot On · Food Ingredients · October 2019

Company CountryMarket cap

(US$m)EV/Sales(US$m)

EV/EBITDA (US$m)

Robertet S.A. 1,715 2.9x 17.7x

Anhui Jinhe Industrial Co., Ltd. 1,595 2.4x 9.0x

AGRANA Beteiligungs-AG 1,152 0.6x 10.7x

T. Hasegawa Co., Ltd. 806 1.4x 7.9x

Guilin Layn Natural Ingredients Corp. 621 7.4x 51.8x

ChenGuang Biotech Group Co., Ltd. 486 1.2x 14.7x

Takasago International Corporation 504 0.6x 8.5x

Nantong Acetic Acid Chemical Co., Ltd. 501 1.4x 10.2x

Qianjiang Yongan Pharmaceutical Co., Ltd. 371 1.9x 10.6x

Apple Flavor & Fragrance Group Co., Ltd. 367 0.7x 10.7x

S H Kelkar and Company Limited 263 2.0x 11.5x

EnWave Corporation 172 6.0x N/A

Camlin Fine Sciences Ltd. 103 1.2x 13.0x

Changmao Biochemical Engineering Company Limited 54 0.4x 2.3x

Allied Biotech Corporation 55 2.2x 8.2x

Vidhi Specialty Food Ingredients Limited 43 1.4x 6.8x

Rolfes Holdings Limited 30 0.4x 7.6x

Sojaprotein a.d. 22 0.9x N/A

Dynemic Products Limited 19 1.0x 5.5x

Vipul Organics Ltd. 14 1.2x 16.3x

Adj. average (without max or min) 5,041 2.3x 13.1x

Average 5,452 2.4x 13.9x

Median 1,642 1.6x 12.1x

Selected l isted companies

Source: Capital IQ, Data in US$m as of 09/09/2019

6OAKLINS – Spot On · Food Ingredients · October 2019

Dates FI - Index Value

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

11.00x

12.00x

13.00x

14.00x

15.00x

30-Sep-16 31-Jan-17 31-May-17 30-Sep-17 31-Jan-18 31-May-18 30-Sep-18 31-Jan-19 31-May-19 10-Sep-19

Dates FTSE All - World Index - Food Producers - Index Value

FI - Index Value

30-Sep-16 0,00 0,0031-Oct-16 -3,51 -6,7430-Nov-16 -6,29 -10,2331-Dec-16 0,18 -8,1731-Jan-17 -9,27 -8,4928-Feb-17 -1,70 -5,1831-Mar-17 -1,27 -3,2430-Apr-17 2,55 1,9031-May-17 7,48 5,0330-Jun-17 3,88 4,0731-Jul-17 3,94 6,4831-Aug-17 11,26 9,9830-Sep-17 7,68 13,2731-Oct-17 10,94 16,2430-Nov-17 4,55 17,1131-Dec-17 4,10 18,2531-Jan-18 -1,74 19,4928-Feb-18 -6,80 13,8231-Mar-18 -12,89 12,5530-Apr-18 -6,28 13,2031-May-18 -2,69 12,1530-Jun-18 -1,64 12,5131-Jul-18 -8,08 13,6331-Aug-18 -11,01 13,2630-Sep-18 -9,54 14,7331-Oct-18 -10,09 8,6430-Nov-18 -8,94 8,1831-Dec-18 -19,23 0,8331-Jan-19 -10,05 6,5728-Feb-19 -12,37 10,3631-Mar-19 -7,39 13,7630-Apr-19 -2,00 17,3931-May-19 -6,75 14,0630-Jun-19 -6,67 17,8331-Jul-19 -7,08 15,0331-Aug-19 -11,00 10,8610-Sep-19 -9,97 13,30

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

30-Sep-16 31-Jan-17 31-May-17 30-Sep-17 31-Jan-18 31-May-18 30-Sep-18 31-Jan-19 31-May-19 10-Sep-19

FI Index ValueFTSE All-World Food Producers Index Value

Dates FI - Inde Value

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

2.00x

2.10x

2.20x

2.30x

2.40x

2.50x

30-Sep-16 31-Jan-17 31-May-17 30-Sep-17 31-Jan-18 31-May-18 30-Sep-18 31-Jan-19 31-May-19 10-Sep-19

Valuation trendsOaklins’ food ingredients specialists have created a custom food ingredients index, composed of 38 selected listed companies active in the FI industry (see above section, Selected listed companies). Over the past three years, these FI companies have outperformed traditional food and beverage manufacturers, represented by the FTSE All-World Food Producers index – see the graph below.

In addition, there are two further graphs, one referring to EV/Sales and the other to the EV/EBITDA multiple, which represent trends in the food ingredients sector during the last three years.

Custom Food Ingredients index VS. FTSE All-World Food Producers index

EV/Sales Multiples – Food Ingredients index

EV/EBITDA Multiples – Food Ingredients index

Source: Capital IQ, Data in US$m as of 10/09/2019

7OAKLINS – Spot On · Food Ingredients · October 2019

Source: Capital IQ and MergerMarket, transactions related to food ingredients, food additives/ingredients, flavors and fragrances industries

M&A activityDuring the first nine months of 2019, 54 M&A transactions were closed involving targets active in the food ingredients industry with a 2014–2018 CAGR of 6.9%.

Total food ingredients M&A deals

Number of transactions by region (2019)

2015 2016 2017 20182019 (Q1–

Q3)68 95 103 90 54

2015 2016 2017 2018 2019 (Q1–Q3)

54

90

10395

68

Africa/MiddleEast 7UnitedStatesandCanada 39Europe 26Asia/Pacific 22La?nAmericaandCaribbean 7

7%

22%

26%

39%

7%

Africa/Middle East

USA and Canada

Europe

Asia/Pacific

Latin America and the Caribbean

Source: Capital IQ and MergerMarket, transactions related to food ingredients, food additives/ingredients, flavors and fragrances industries

As regards the number of deals completed, Q1–Q3 2019 compared to Q1–Q3 2018 shows a slight decrease: 59 closed transactions in 2018 compared to 54 deals in 2019.

In terms of the targets’ countries, in 2019 USA and Canada are the most active locations (39%) followed by Europe (26%), Asia/Pacific (22%), Africa/Middle East (7%) and Latin America and the Caribbean (7%).

“Similar to previous years, in the first half of 2019, multiples of the food ingredients sector

remained high for both private M&A transactions and listed

companies.”

MICHELE MANETTIOAKLINSʼ FOOD INGREDIENTS

SPECIALIST

8OAKLINS – Spot On · Food Ingredients · October 2019

Date Target Bidder Rationale Country Valuation

EV (US$m)

EV/Sales

EV/EBITDA

EV/EBIT

24-Jul-2019 Food ingredients producer 29 1.4x 12.5x 17.9x

28-Jun-2019UK- and Chile-based natural

colors business N/A N/A N/A N/A

18-Jun-2019 Supplier of baking products N/A N/A N/A N/A

13-Jun-2019Production and supply of

ingredients and flavorings for food products

N/A N/A N/A N/A

3-Jun-2019Importer and distributor of

ingredients and flavors 678 0.9x N/A 16.2x

31-May-2019Provider of flour and semi-finished

baking products N/A N/A N/A N/A

20-May-2019Manufacturer of fine flavors, fragrances and essential oils N/A N/A N/A N/A

30-Apr-2019Manufacturer of seasonings

and flavors N/A N/A N/A N/A

9-Apr-2019

Production and distribution of food products, including margarine,

vegetable oils and baking ingredients

N/A N/A N/A N/A

1-Apr-2019 Natural oils business N/A N/A N/A N/A

25-Mar-2019 Maker of baking ingredients 40 1.8x N/A N/A

11-Mar-2019Distribution of specialty chemical

and food ingredients N/A N/A N/A N/A

M&A activityA selection of recent private transactions in the sector:

9OAKLINS – Spot On · Food Ingredients · October 2019

M&A activity

Date Target Bidder Rationale Country Valuation

EV (US$m)

EV/Sales

EV/EBITDA

EV/EBIT

20-Feb-2019Purification of vegetable oils

and fats for the (biological) food industry

N/A N/A N/A N/A

4-Feb-2019Producer of apple and citrus pectin dietary supplements 373 N/A 13.0x N/A

18-Jan-2019 Yeast facility N/A N/A N/A N/A

17-Jan-2019Euroconsultant

Sp. z o

Distributor of flavors, shelf life extenders and other products

predominantly for the meat segment

N/A N/A N/A N/A

10-Jan-2019Production of lecithins and

phospholipids N/A N/A N/A N/A

Source: CapitalIQ and MergerMarket

10OAKLINS – Spot On · Food Ingredients · October 2019

OAKLINS OFFERS A COMPREHENSIVE RANGE OF SERVICES

ͽ M&A advisory (buy-side and sell-side)

ͽ Growth equity and equity capital markets advisory

ͽ Debt advisory

ͽ Corporate finance services

Food ingredients is one of our focus areas. Combining comprehensive sector knowledge with global execution has led Oaklins to become one of the most experienced M&A advisors in the food ingredients sector, with a large network of relevant market players worldwide. This results in the best possible merger, acquisition and divestment opportunities for food ingredients companies.

If mergers, acquisitions or divestitures of businesses or business units are part of your strategy, we would welcome the opportunity to exchange ideas with you.

OAKLINSʼ FOOD INGREDIENTS SPECIALISTS

Deep local roots, global commitmentOaklins brings you opportunities from across the world and

we meet you with our expertise wherever you are

About Oakl ins

Oaklins is the world’s most experienced mid-market

M&A advisor, with 800 professionals globally and dedicated

industry teams in 40 countries worldwide. We have closed

over 1,500 transactions in the past five years.

SVEN-AKE LEWINPartner

Stockholm, Sweden

T: +46 8 459 82 40

OSCAR VAN LEEUWEN Director

Amsterdam, Netherlands

T: +31 20 416 1303

AUTHOR MICHELE MANETTI

Partner

Milan, Italy

T: +39 335350 866

PHILIPPE HERMANTSenior Advisor

Paris, France

T: +33 1 43 12 32 12

11OAKLINS – Spot On · Food Ingredients · October 2019

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