Now that IFF has become a new megaforce in the ingredients industry, a report of speedy divestitures is not unexpected. In fact, company leaders have been saying divestitures were coming — and would be a part of IFF’s long-term financial strategy — for several months. While IFF touts itself as a one-stop solution for clients that want to improve their products, some of its businesses don’t support that goal.
“We certainly want to make sure that we put our resources behind the parts of the portfolio which have great growth potential and nice profitability,” Fibig said at CAGNY this week.
The microbial controls business is one that sticks out in IFF’s portfolio. A former Dow business that came to DuPont through a merger, the unit makes antimicrobial chemicals primarily used in industrial applications, including for the oil and gas industry, water treatment, construction and in paints and coatings. Considering IFF’s focus on taste, fragrance and texture in food, perfumes and home care, this business doesn’t quite fit.
The fruit processing business, based in Europe, was sold by IFF 17 years ago, as the company was looking to concentrate in the flavor and fragrances business. While IFF is larger now, this unit still doesn’t fit into its current business model.
Recently, M&A has been more active in the ingredients sector than in the food business as a whole. Companies are using divestments to more closely focus their missions, often selling to private equity or commodities traders that can help grow the businesses on their own. Late last year, SunOpta sold its global ingredients business for $390 million to Amsterdam Commodities, solidifying its path as a plant-based food and drink company. Chr. Hansen divested its natural colors business to private equity firm EQT IX for 800 million euros ($940 million), centralizing its business on food cultures and enzymes. And in 2019, prior to public talk of the merger with IFF, DuPont Nutrition & Biosciences also sold its natural colors business to tighten its focus.
Not only does IFF want to be able to move forward as a streamlined new company, but it also wants to reduce its debt. In its most recent earnings report, which covers the quarter ending Dec. 31, 2020, IFF had almost $3.8 billion in long-term debt and nearly $1.5 billion in non-current liabilities. The merger with the DuPont division added to that debt load. Fibig said both at CAGNY and on the earnings call that debt repayment is the company’s top priority, and proceeds from divestments could help do that faster.