Intense M&A activity in bakery and snacks means consolidation of fragmented ingredients sector, but lower costs for customers

According to new report by London-based corporate finance house Oghma Partners that looks at M&A across the European Food Ingredients Market 2013-2022, the trend for multiple transactions has increased significantly over the years.

Multiple expansion has largely been driven by strong strategic buyer demand, low interest rates/rising equity markets (quoted ingredient company’s valuation) and the ‘easy’ availability of capital.

Multiple expansion

Norwegian conglomerate Orkla is a case in point, being the most active and procuring 24 business within that 10 year period.

Orkla's focus was on snapping up distributors and manufacturers of products in the bakery sector, and included Hadecoup and Vesterålen Marine Olje in 2022; Kaspar, NutraQ Cake Décor in 2021; Gortrush a year earlier; and Vamo, Confection by Design, Risberg, Zeelandia and Stelois Kanakis in 2019.

Puratos has been the 5^th​ most active player, again focused on bakery ingredients, gaining Give Konfekture, Profimix Svijany, THT this year; Schobbers in 2021; Plange Bakery Ingredients in 2018l and Fruitapeel and Diamant Nahrungsmittel in 2017.

Reviewing activity by ingredient segment, Additives saw the most dynamic action, accounting for over 16% of deal volume, while Flavours and Fragrances came in third place –  both key areas for bakery and snacks.

“Overall, therefore, the bakery and snacks sector has been one of the more active end user segments for Ingredients M&A,”​ Mark Lynch, partner at Oghma Partners, told BakeryandSnacks.

“There remains lots more opportunities for consolidation given the fragmented nature of the supply base.​

“For customers this will mean less choice over time but also perhaps lower costs as synergy benefits are shared with customers and potentially greater investment in technical and R&D capabilities from the supplier base as they also deploy some of the cash benefits of merging businesses into strengthening their offer in the market.”​

Fragmented

According to Oghma, the global food ingredients market was estimated to be worth $380bn in 2021 and the majority of volume is made up of low margin, commodity products like flour and sugar.

Globally, rising incomes are resulting in increased consumption, with emerging markets – specifically Asia Pacific, Middle East and Africa – leading market growth.

This is essentially a fragmented sector, with Oghma calculating that pure play value added ingredient players are all sub €10b in revenue.

Continued consolidation

However, the finance firm expects continued consolidation, despite the more challenging environment.

This will be driven by the shift towards high value-added products as “commodity-focused ingredients players are likely to continue to expand into speciality ingredients to strengthen  existing operations,” ​along with the continued consumer focus on better-for-you offerings, “likely to maintain the interest in areas like botanicals.”​

Players are also expected to ramp up geographical expansion to reach new customers and broaden product portfolios, while many innovative startups will give the market a boost with unique product lines and customised formulations.

“This ability to be more nimble and to react to customer needs presents an attractive proposition for many of the larger, highly acquisitive, ingredients players,” ​said Lynch.

European M&A

For the period 2013 to 2022YTD, Oghma estimated the total European Food Ingredients M&A market to be valued at £71.3bn

The firm recorded a total of 351 transactions (<£1m to >£10bn) in the period.

The years 2017 and 2021 were the busiest, with 53 and 46 completely transactions respectively.

The majority of deals fell between a range of £1m-£6m, with the exception being the £21.8bn merger between IFF and Dupont’s Nutrition and Biosciences business in 2019. Meanwhile, the announcement of the £19bn merger between DSM and Firmenich in May 2022 is expected to contest IFF’s leadership in the industry for flavours, fragrances and ingredients.

The latter pairing has been described as a ‘powerhouse of innovation and creativity’ and expected to add more than €350m to adjusted earnings and €500m in sales.