Givaudan becomes global leader in flavours & fragrances after ICI deal - March 22, 2007

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The valuation multiples in this deal are ‘at a premium to comparative transactions’, as the FT so gently put it. Quest’s operating margin is still only 10%, after all. This is a deal that clearly happened at the peak of the cheap debt cycle. Givaudan’s key net debt to EBITDA ratio will push up beyond x5, after this deal, and surely a lot of integration and ‘portfolio streamlining’ will follow quickly. To be fair, though, there are significant synergies here, and subsequent Quest announcements about its innovations in e.g. fruit flavours reveal the excitement at Givaudan for the transaction.

Interesting to see how a b2b ingredients company can be worth more, mutatis mutandis, than a branded finished products company of comparable growth and profitability. Maybe it suggests that being in a business with a high R&D entry barrier is worth more than having strong brands? Or maybe global businesses are simply in a different league to national ones; Givaudan now claims to have a 25% global market share after this deal (supplying food, homecare and personal care industries).

As for ICI, it’s somewhat unclear what the group’s strategic focus is, after this deal when, arguably, flavours and certainly fragrances were part of their strategic focus; certainly Quest’s operating margin wasn’t bad and was growing. In which case, they sold because the price was too good not to. Or maybe the rumour mill is right that, being now debt-free after this deal, ICI is beautifully teed-up to be acquired or to undergo an LBO. An obvious candidate as acquirer is Akzo Nobel.