International Flavors & Fragrances: When Bland Is Good

Bite-sized deals are paying off.

The scientists at International Flavors & Fragrances spend their days working on ways to make consumer products appeal more to the senses, developing scents for detergent "so delightful it made you forget you were doing the laundry" and flavors for foods like noodles and roasted nuts that will "fulfill you like no others."

When it comes to acquisitions, however, IFF is keeping things bland -- and that's working out just fine. 

The New York-based company's market cap breached $10 billion for the first time Tuesday as investors cheered its first-quarter results by sending the stock as much as 6.4 percent higher to a record $127.53. IFF beat consensus earnings estimates by 5 percent, a strong result given the company is facing foreign-exchange headwinds and volatile customer ordering patterns. 

All Things Nice

IFF's shares reached a fresh high on Tuesday and have roughly doubled in the past five years.

Source: Bloomberg

IFF's bite-size acquisitions of Lucas Meyer Cosmetics and Henry H Ottens Manufacturing, both in 2015, weren't overly exciting for dealmakers whose fees are tied to a transaction's size. But they have been a success, boosting the company's fragrances segment and flavors segment sales by 4 percent, respectively (on a currency-neutral basis) and lifting its overall adjusted Ebitda margin by 120 basis points to a respectable 24.7 percent this quarter.  The acquisitions also keep IFF on track to meet at least one of its four "Vision 2020" goals of strengthening and expanding its portfolio.

Secret Sauce

IFF's adjusted Ebitda margin has expanded by 480 basis points in the past four years

Source: Company filings

Chairman and CEO Andreas Fibig shed additional light Tuesday on what IFF is looking for in potential takeover targets, namely businesses that either offer technology and innovation, or access to customers in regions in which it's currently underrepresented. Active cosmetics -- ingredients that can be used in products that tackle skin aging and protection -- is a division that the company hopes to grow both via M&A and organically, he said.  

"As you know, we are not doing anything outrageous here. We really want to make sure that we are financially disciplined [around] what we acquire," Fibig said on the company' s earnings call. Transactions must be accretive to earnings per share in the first year following a deal, and boost economic profit within three to five years, said IFF's CFO Alison Cornell.

At least one private equity-backed business may be a fit -- specialty chemical company CABB, which makes ingredients used in cosmetics, vitamins, agrichemicals and other products. But it's unclear whether its owner Permira is a willing seller, considering the firm has owned CABB for less than two years.

One potential hurdle for IFF comes in the form of key rivals 1 . Germany's Symrise and Switzerland's Givaudan appear to be equally as focused on so-called bolt-on acquisitions, which may intensify competition for any potential deals.  

IFF's soaring shares are already viewed as fully valued by Wall Street analysts who believe the stock will be trading at roughly the same level 12 months from now. But a dash of M&A action -- within the company's outlined boundaries -- may prop them higher yet. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. The trio's fourth competitor Firmenich, also of Switzerland, is closely-held so isn't subjected to regular queries about its M&A strategy

To contact the author of this story:
Gillian Tan in New York at

To contact the editor responsible for this story:
Beth Williams at

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