Agribusiness giant Archer Daniels Midland said Monday that it will buy Swiss-German natural-ingredient company Wild Flavors for $3 billion, a purchase aimed at capturing customers that increasingly favor foods with natural ingredients and flavorings.
ADM, one of the world’s largest grain traders and a major food processor, said that it will establish a new business unit called Wild Flavors and Specialty Ingredients, and that it expected to complete the deal by the end of the year.
Wild Flavors, based in Switzerland, is ADM’s first venture into the flavors market. Consumers have been showing an increasing appetite for foods made of only natural components. With the purchase of Wild Flavors, ADM will get access to a wide variety of flavors, seasonings and colors derived from natural sources and used in processed foods and drinks.
ADM Chief Executive Patricia Woertz said in a call with industry analysts that Wild Flavors will be a “growth engine” for ADM.
Almost 30 percent of new food-manufacturing-product launches over the past two years have been based on the health sector, said Evgenia Molotova, an analyst at Berenberg.
“The sector attracts a lot of M&A interest, because it’s very cash-generative with stable earnings growth,” she added. “Ingredients is a very unconsolidated market, and there are a number of private companies that could be interesting.”
The transaction, which includes around $136 million in debt, values Wild Flavors at 16.4 times its core earnings, according to Thomson Reuters data. ADM is targeting 100 million euros of cost savings by the third year of the acquisition.
“I think it will be very difficult for them to extract value at such a high valuation,” Molotova said. “It’s an ambitious target in terms of synergies.”