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DSM Buys Food-Additive Maker Fortitech in $634 Million Deal

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Nov. 8 (Bloomberg) -- Royal DSM NV agreed to buy Fortitech of the U.S. in a $634 million cash deal to expand its bespoke food-ingredient business and to move closer to end customers in the nutrition market.

The purchase, expected to close this year, will add to earnings in the first full year, the Heerlen, Netherlands-based company said in a statement. DSM is paying a multiple of about 9.06 times earnings before interest, taxes, depreciation and amortization, based on expected 2013 profit of $70 million.

The purchase of closely held Fortitech, which supplies and blends ingredients for infant nutrition as well as dietary supplements, follows about 1.8 billion euros in takeovers by DSM to expand in nutrition, including the purchase of baby-food ingredient maker Martek Biosciences, and Tortuga of Brazil to bolster its animal-nutrition unit. Chief Executive Officer Feike Sijbesma is steering the company away from lower-margin, commodity-based businesses.

“We like this deal very much as we like the price, it is a non-listed company, it has close synergies with DSM’s own production assets,” said Fabian Smeets, an analyst at ING in a note. “The business should be positioned for still more growth as we see significant top line synergies with DSM as well.”

Shares of DSM rose 0.2 percent to 40.75 euros as of 10:09 a.m. in Amsterdam.

Fortitech’s blending and mixing of nutritional supplements takes DSM a step closer toward the consumer. It follows a relationship with the company spanning decades, and managers will stay on after the takeover, Stephan Tanda head of DSM nutrition, told reporters on a call.

Integrating the Schenectady, New York state-based business into existing operations will generate savings equal to about 10 percent of net sales by 2015, with scope for sharing warehousing, raw materials and other costs. Another $70 million in one-time synergies are predicted as DSM avoids capital expenditure. DSM is paying a multiple in line with other deals its done, Tanda said.

After this acquisition, the company has about half a billion euros in cash left for takeovers, as DSM will slow down on deals to focus on integration, Chief Financial Officer Rolf-Dieter Schwalb said in a conference call with analysts.

To contact the reporter on this story: Andrew Noel in London at anoel@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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