DSM, Firmenich to merge into ‘powerhouse of innovation and creativity’

Dive Brief:

• Dutch chemicals giant Royal DSM is merging with Swiss ingredients maker Firmenich in a deal valued at roughly $21 billion. DSM shareholders would own 65.5% of the newly formed DSM-Firmenich, while Firmenich shareholders would own the rest. The deal is expected to close in the first half of 2023.
• DSM-Firmenich’s headquarters will be in Switzerland and the Netherlands. It will have four main business units: food and beverage; perfumery and beauty; health, nutrition and care; and animal nutrition and health. The Netherlands-based food and beverage business will have combined revenues of 2.7 billion euros ($2.9 billion), with capabilities in taste, nutrition and functionality. 
• The merger will “create a powerhouse in innovation and creativity,” Firmenich CEO Gilbert Ghostine told CNBC. It will have 16,000 patents and 15 R&D centers, and a focus on meeting consumer needs around sustainability, health and well-being.  

Dive Insight:

Firmenich and DSM executives are positioning the deal as “a merger of equals,” although DSM’s shareholders will control most of the new firm’s combined equity and its executives will take many of the key leadership roles. 

Geraldine Matchett and Dimitri de Vreeze, currently co-CEOs of DSM, will be appointed co-CEOs of DSM-Firmenich. Thomas Leysen, current chairman of DSM’s supervisory board, will be chairman of the merged company, with current Firmenich chairman Patrick Firmenich as vice chair. Emmanuel Butstraen, current president of Taste & Beyond at Firmenich, will serve as chief integration officer.

Analysts at brokerage Stifel told Reuters the transaction will “create a new giant in the nutrition space, and the only one to combine flavours and fragrances with nutritional benefits.” DSM-Firmenich would have an estimated 11.4 billion euros ($12.3 billion) in annual revenue. This would give it a comparable footing to IFF, which combined with DuPont’s Nutrition and Biosciences business early last year in a deal valued at $26.2 billion. IFF’s 2021 sales totaled $11.7 billion.

The food and beverage ingredients arm of DSM-Firmenich will make up nearly one-quarter of the combined entity’s revenue, according to a presentation on the merger. Its focus will include natural, clean-label and sustainable products; ingredients for plant-based foods; and options to boost food’s nutritional profile, including vitamins, probiotics, lipids and solutions to reduce sugar and salt.

Firmenich has been especially active lately in the plant-based realm, introducing ingredients designed to mimic the fat and grilled flavors of animal meat. The Switzerland-based company also offers sugar-reduction options including stevia, monk fruit and sucralose; flavors to help reduce salt; and prebiotics.

At DSM, food and beverage solutions make up about 15% of net sales. But it also has also been active in alternative proteins, partnering last year with Dutch cultured meat maker Meatable to develop taste and texture technologies for cell-based products. 

Beyond that, DSM has built its competency in dairy ingredients, with its $453 million purchase of U.S.-based flavoring provider First Choice Ingredients last year, and an expansion of its cultures line. It also gained access to bio-based intermediates through its purchase of Amyris’ Flavor & Fragrance business. This allowed it to boost its sustainability profile because bio-based flavor and fragrance ingredients can be alternatives to chemistry-based products.

The mega-merger underlines the trend of consolidation in the ingredients space, with a raft of M&A deals in the past year between big-name players in colors, preservatives, starches and more. Oftentimes, clean label, natural and health and wellness trends are given as the key reasons for a deal. More recently, large industrial players have been bolstering their portfolios in these spaces, with Tate & Lyle acquiring a plant-based protein maker and Kerry purchasing an ayurvedic botanic ingredients firm.