Firmenich-DSM Merger to Create Sector Giant

02.06.2022 - In an M&A market that is heating up, one mega deal begets another, as market watchers speculate on what the next big move might be, when it might come and which players will be at its center.

To eyes that are focused on the materials sphere, the news on May 31 that DSM planned to merge with Switzerland’s Firmenich was literally a footnote – buried deep in the story that the Dutch company had agreed to sell its last remaining plastics businesses to German chemical producer Lanxess and private equity investor Advent International.

For those following the nutrition, flavors and fragrances sector, however, it was the only story of note and deserving of its own headline-grabbing fanfare. The second all-European transaction announced in a day – which analysts have pegged as being worth around €41 billion – will create a “global powerhouse” in the specialist products needed for a booming market in alternative foods and nutrition, the companies said.

The new entity, to be called DSM-Firmenich, will aim to blend the two participants’ respective strengths, DSM’s in biotechnology and nutrition and Firmenich’s in molecular engineering and flavors and fragrances.

Expected to close in the second half of 2023, subject to regulatory clearance, the merger will be effected through a dual modus, including a one-to-one public offer for DSM shares in exchange for DSM-Firmenich shares. The Firmenich family shareholders will swap their shares in the existing company for equity in the new company, as well as receiving an estimated €3.5 bilion in cash.

DSM- Firmenich’s equity will be weighted toward the Dutch merger partner, whose shareholders will hold 65.5% of the new company listed on the Euronext exchange in Amsterdam. The Firmenich family will own 34.5%. While the new player will be legally domiciled in Switzerland, it will have dual operating headquarters at Kaiseraugst, Switzerland, and Maastricht, the Netherlands.

The Dutch company’s two co-chief executives, Geraldine Matchett and Dimitri de Vreeze, will lead the merged enterprise as they have since 2020. DSM’s Thomas Leysen will continue as chairman of the supervisory board, while Patrick Firmenich will serve as vice chair.

As the expected new market leader, DSM-Firmenich would push each of the current players, including current number one International Flavors & Fragrances of the US, number two Givaudan of Switzerland and Germany’s Symrise, a notch downward.

The combined company’s portfolio will be divided into four key business lines: perfume and beauty, with annual sales of around €3.3 billion; food and beverage with revenues of €2.7 billion; health and nutrition with €2.2billion; and animal nutrition with €3.3 billion. Altogether, it will have 28,000 employees.

Based on 2021 figures, Firmenich will contribute annual sales of 4.2 billion to the pro forma total, along with an EBITDA margin of 19%. DSM will contribute €7.3 billon, after deducting its materials business, in addition to adjusted EBITDA of €1.4 billion and an adjusted EBITDA margin of 19-20%.

Putting the two companies together on an aggregate basis will give rise to a major player with around €11.4 billion in sales and EBITDA of €2.2 billon, DSM’s Matchett commented, adding that “we will be securing a very strong balance sheet.”

Going forward, the combined company is projecting mid-term 5-7% sustainable organic sales growth annually, driven by innovation, and a mid-term adjusted EBITDA margin of 22-23%. But Matchett said exploitation of synergies could add €350 to the projected pro forma adjusted EBITDA, along with about €500 millon in annual sales.

The last major deal in this market took place in 2021, when IFF beat Ireland’s Kerry Group to acquire DuPont’s nutrition and biosciences business for $2.6 billion.  At the outset, former DuPont shareholders owned 55.4% of the combined company.

Author: Dede Williams, Freelance Journalist