Despite some significant mergers in the past two years – such as the BASF acquisition of Cognis – there was actually relatively little merger and acquisition activity in the global ingredients industry in 2009 and 2010.
"The recession left many companies reluctant to make significant financial commitments," said John Madden, head of ingredients research at Euromonitor International. "The few sizeable deals that were struck during this time tended to involve companies that had been on the auction block for some time, such as Cognis and National Starch, rather than speculative acquisitions."
But expect this situation to change in 2011, Euromonitor says in its new report "Mergers and Acquisitions in the Ingredients Industry," released in March. Buyout activity was already on the upswing in late 2010, as witnessed by DSM's $1.1 billion purchase of Martek Biosciences, DuPont's $6.3 billion acquisition of Danisco, and Cargill's $300 million investment in Sorini of Indonesia.
"There is ongoing speculation over which companies could be next to change hands and further notable activity is anticipated during 2011," Madden said.
One unique feature of the upcoming period is the expansion strategy some companies appear to be taking, Madden said.
"Certain companies, such as Kerry Ingredients and Frutarom, having a permanent focus on acquisitions, building their businesses with regular investments in small add-on purchases -- while other firms tend to prefer waiting for the one big deal that will make a more direct and significant impact on their business," Madden said. "Meanwhile, other firms tend to use acquisition as a route to regional expansion, while technology add-ons are also popular in an industry that relies so heavily on innovation and R&D."
Madden believes Asia Pacific will remain a key target market, while the Middle East and Africa could become more important.
Other observations in the report include:
- There has been more M&A activity in food and beverage ingredients than in home and personal care.
- While Western firms look east for expansion opportunities, successful Chinese and Indian companies, less affected by the recession, are starting to look the other way for prime deals; this may feature more prominently in future ingredients M&A activity.
- Sustainability is a key theme in modern industry so companies with good credentials in this arena make them more attractive; this was seen in BASF's purchase of Cognis, which uses more renewable raw materials than its new parent.