Can DSM Firmenich merger deliver on its synergistic promise?

By Shane Starling

- Last updated on GMT

© Getty Images
© Getty Images

Related tags: Dsm, Firmenich, Mergers and acquisitions

DSM and Firmenich’s mooted 2023 ‘Merger of Equals’ will create a nutrition, food ingredients and fragrances behemoth with 277 years of collective business experience and a combined annual revenue pushing towards €12 billion (£10.2bn).

The deal rivals that of the 2021 €20bn+ (£17bn+) merger between International Flavors & Fragrances (IFF) and DuPont’s Nutrition and Biosciences division.

The Dutch and Swiss firms have spoken much of the synergies they predict will save at least €175 million (£149m), while not cutting too many of 28,000 jobs and keeping annual R&D spends higher than most rivals at 9.3% of revenue – about €700m (£145m).

By comparison, Givaudan spends 8.4% of its revenues on R&D, IFF/DuPont 6.1% and Symrise 5.9%.

The deal may not be slated to complete until H1 2023 – regulator approval forthcoming – but DSM Firmenich, as the €40bn (£34bn) entity will be known, is already live and kicking with a bespoke website​ spelling out its science, innovation, sustainability and purpose-driven vision.

A vision it says will “positively impact people and the planet…Leveraging world-class science and complementary capabilities in fragrance, taste, texture and nutrition".

Botanical benefits

Robert Harwood, PhD, Oxford-based CEO of CPL Business Consultants, sees many positives in the union, one being a complementary fusion of the firms’ botanicals processing capabilities.

“One driver in this deal is access to new technologies, especially in fermentation and extraction,”​ Dr Harwood told NutraIngredients.

DSM sees itself as a bio-based company and diversifying the portfolio of products it can offer in specific areas is a strategic aim. The botanicals business will complement DSM's bio-based business. It acquired Amyris in 2021 – its chosen route has been more along the lines of fermentation rather than extraction.

Dr Harwood added: DSM has expertise in biologics and protein separation which complements Firmenich's technologies in plant-based natural ingredients.

There are also synergies in the range of extraction technologies employed, using a wide range of natural materials. These include chromatographic separation, distillation techniques and supercritical fluid extraction.

13 June investor presentation

In a just-seen investor presentation​ set for next week, DSM Firmenich has provided further detail about its plans and focus areas.

The new entity expects 60% of revenue synergies realised by 2026 will come from Food & Beverage/Taste & Beyond, 25% from Health, Nutrition & Care and 15% from Perfumery & Beauty.

‘Next gen’ food supplements​ like gummies “leveraging taste experience” ​will be called out.

Medical Nutrition​ will be targeted with “enhanced protein/nutrition content and appealing taste profiles”.

Plant-based foods ​is another focus area that will leverage a “strong portfolio of flavours, taste modulation, texture, enzymes, cultures, micronutrients, functional ingredients and differentiated protein sources”.

Functional Nutrition​ will see “taste, texture and nutrition portfolios” tapped to deliver “well-being attributes” ​in the form of functional foods and functional drinks.

Dairy​ enhancement will happen via “premium taste profiles, texture and health attributes.”

During the presentation, Firmenich highlighted its current nutrition work including sugar, salt and fat reduction; immune system, microbiome balance and inner wellbeing; consumer-preferred plant and plant protein development including alt-meats.

The Swiss firm also pointed its use of AI in ingredient development and deepening digital commitment.

"Firmenich will benefit from DSM's presence in a large number of areas in which it is not active, such as nutritional ingredients – they already sell flavours for nutritional products but not nutritional ingredients,”​ observed CPL’s Dr Harwood.

DSM, for which animal and pet nutrition accounts for close to half of its revenues, followed by food and beverages (15%) and food supplements (15%), the union coincides with its final exit from the petro and bulk chemicals businesses that were at the centre of its foundation after selling its engineering and protective materials operations.

Breaking down a behemoth

To achieve its goals DSM Firmenich will have an impressive resource arsenal at its disposal, including 28,000 employees based in dual HQs in Maastricht in the Netherlands and Kaiseraugst in Switzerland plus hundreds of other sites around the world.

This includes 2,000 researchers at 15 R&D centres globally working with something like 16,000 mostly food/nutrition ingredient and fragrance technology patents in 2,600 patent families.

Other operation units include 40 creation centres, 78 application labs, 70 premix sites and 88 manufacturing sites.

By uniting the firms are expecting an annual revenue boost of €500m (£426m), with follow-on EBITDA ‘synergy’ returns of about €350m (£298.5m) a year by 2026.

It expects 5-7% growth and 22-23% company-wide EBITDA contributions and a one-off merger cost of €250m (£213m).

DSM Firmenich will list on the Euronext Amsterdam stock exchange.

Related topics: Suppliers, Markets, M&A, Financial focus

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