Croda says it has agreed to acquire flavors and fragrances company Iberchem Group from investment company Eurazeo for $975 million.

WHO: Iberchem, headquartered in Murcia, Spain, was founded in 1985 and has approximately 850 employees, 14 manufacturing facilities, 10 R&D centers, and a commercial presence in 120 countries.

Croda is the largest cosmetic-ingredients maker in Europe. Founded in 1925 by an entrepreneur and a chemist, Croda International plc is a holding company based at Snaith, England, that manufactures a diverse range of chemicals and chemical products for the personal care, pharmaceutical, plastics, food processing, nutrition, fire prevention, engineering, and automotive industries.

WHY: Acquiring Iberchem marks Croda’s entry into the flavors and fragrances market, flipping the tables on the fragrance houses that have been snapping up ingredient suppliers. The deal will help drive Croda’s objectives by focusing on faster-growing core consumer markets, adding a new, high-growth adjacency to its existing personal-care and home-care businesses.

IN THEIR OWN WORDS: “We have known Iberchem’s team for many years and their business is highly compatible with Croda’s. Iberchem stands out with its significant exposure to emerging markets, extensive product portfolio well placed to adapt to sustainability trends, strong customer focus and R&D capability, and 10-year track record of consistent year-on-year growth. By bringing our businesses together, we are creating a new, full-service offering to our customers in consumer-care markets and a compelling platform from which to grow the combined business in the years ahead,” says Steve Foots, CEO of Croda.

Croda was the under-bidder “by a long way” in the sale process for Iberchem, Foots said. Management of the target company holds a 30% stake and was influential in Eurazeo’s decision to go with Croda.

Ramón Fernández, CEO of Iberchem, said, “We are pleased to join the Croda family and therefore strengthen our business offer. Not only are Croda and Iberchem’s activities compleme­ntary, but also both companies have grown and expanded their activities on a similar vision and core values. The preservation of the Iberchem identity, the reason why our customers place their trust in us on a daily basis, was of paramount importance for the management team, and we are pleased how understanding Croda has been on this aspect. We are delighted to embark on this exciting new adventure.”

“Croda’s performance and share price indicate that it has a license to execute M&A and this entrance into flavors and fragrances, albeit small, is exciting,” said Thomas Wrigglesworth, an analyst at Citigroup Inc.

DETAILS:

• Croda has agreed to acquire the entire issued share capital of Iberchem Group from Eurazeo for $975 million on a debt-free, cash-free basis.
• The acquisition price represents a multiple of 20.5 times Iberchem’s estimated 2020 EBITDA, according to Croda.
• Iberchem generates 80% of its sales from fragrances used in personal- and home-care products such as detergents. Food, drug, and oral care account for the remainder of the 174 million euros in revenue last year, with 34 million euros in EBITDA generated.
• Iberchem’s sales have increased at a compound annual growth rate of 15% since 2010.
• The consideration will be funded via a combination of the Group’s existing debt facilities and the proceeds of an equity placing, representing c.8% of Croda’s issued share capital.
• Iberchem will remain an independent entity with extensive support from Croda and continue to be led by its current management team, with the CEO of the company, Ramón Fernández, committing to stay to provide continuity and a smooth transition to Croda.
• Eurazeo acquired 71.5% of Iberchem in 2017 for EUR405 million, less than half what Croda is paying for the business. Iberchem’s management owns the rest of the company.
• Lazard Ltd advised Croda, with Freshfields Bruckhaus Deringer LLP providing legal assistance. Morgan Stanley and HSBC Holdings Plc are coordinating the planned share sale and serving as joint advisers. BNP Paribas SA advised Eurazeo on the sale.
• After acquiring Iberchem, Croda will report under four sectors from 2021—consumer care, life sciences, performance technologies, and industrial chemicals. The newly created consumer-care sector will comprise the current personal-care business, the home-care business unit that currently sits within performance technologies, and Iberchem.
• Croda expects the deal to generate synergies leading to annualized cost reductions of EUR25 million after three years and EUR48 million after five years.