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DSM Seeks M&A Chief to Spend $3.6 Billion on Food, Resins Growth

Royal DSM NV, which has already employed two former investment bankers for its takeovers team, said it’s searching for a chief dealmaker to oversee a budget of more than 2.5 billion euros ($3.6 billion).

The world’s largest maker of vitamins is looking internally and externally for a candidate to head up the strategy and acquisitions team, Chief Financial Officer Rolf-Dieter Schwalb said in an interview in Frankfurt. DSM is preparing for the retirement of Hein Schreuder.

DSM is “actively” planning acquisitions and is at various stages of assessing targets, said Schwalb. DSM, founded in 1902 as a Dutch state mining company, has emerged from a decade-long transition from cyclical chemicals to technology-based additives derived more from enzymes than oil. Assets are being sought in nutritional supplements, high-performance plastics as well as areas like biomedical materials, he said.

“The big portfolio transformation is over and now we are looking for growth,” Schwalb said in the May 11 interview. “We have created the company that we wanted to. We’ve a lot of cash at the moment that we want to invest.”

The company, based in Heerlen, the Netherlands, plans no pause in takeovers after the $1.09 billion-euro purchase of Martek Biosciences Corp., a U.S. supplier of Omega 3 and baby food ingredients, Schwalb said. Integration of that business is going well, he said.


DSM has gained 12 percent in Amsterdam trading since it announced the Martek deal on Dec. 21, boosting the company’s market value to 8.5 billion euros. That compares with a 1.1 percent increase on Amsterdam’s benchmark AEX index.

“No skeletons have been found in Martek” and DSM is ready for additional deals, Schwalb said. DSM’s war chest is being replenished by disposals and a gain from a stake held in Danisco A/S that are set to generate proceeds of about 780 million euros, offsetting the expense of Martek.

The company could be a potential bidder for the nutritional unit of Pfizer Inc., Cheuvreux analyst Martin Roediger wrote in a March note. The U.S. company is in the midst of a strategic review.

DSM would look at the Pfizer business as a matter of course, given that it’s “wise” to monitor any auction “started somewhere near our space,” Schwalb said. The reality of the mergers and acquisitions scene is that most targets are privately held firms that are less known, he said.

“Martek is really an exception,” the CFO said. “Our acquisitions have been business parts of companies, who decided like we decided three years ago to divest” or privately held companies very often.

Ratings Proud

Large acquisitions are possible, yet DSM isn’t keen to jeopardize its A3 and A credit ratings from Moody’s Investors Service and Standard & Poor’s, according to Schwalb. The company also has 13.4 million treasury shares that could be used to help pay for a purchase, he said.

Acquisitions will supplement internal growth, which will this year help drive DSM toward the lower end of its 2013 profit-target range, two years ahead of schedule.

DSM and partner Roquette Freres this week announced plans to enter commercial production of succinic acid derived from yeast, further highlighting its move away from a past steeped in the cyclical markets of synthetic rubbers, nitrogen fertilizer and melamines used in paint.

The transformation of the company has led to changes in its shareholder base, with investors in the U.S. replacing the Dutch as the biggest group. Schwalb said this shift doesn’t make the company more of a target.

“They’re starting to deliver,” said Jean-Baptiste Devevey, a Paris-based analyst at Exane BNP Paribas, which has an “outperform” rating on the stock. “The market initially was a bit afraid of what DSM would do regarding M&A, but what they’ve done so far is rather reassuring for the future and what they’ll do with the cash they have.”

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