Croda to buy fragrances and flavours firm Iberchem

Speciality chemical company Croda International has agreed to acquire fragrances and flavours firm Iberchem, it announced on Wednesday, for €820m (£736m) on a debt-free, cash-free basis.

The FTSE 100 company said Iberchem has been majority-owned by Eurazeo since 2017.

It said Iberchem, based in Murcia, Spain, had around 850 employees, 14 manufacturing facilities, 10 research and development centres and a commercial presence in 120 countries as at August.

About 80% of its sales were fragrances for personal care and home care products - areas where it had a similar customer profile to Croda.

A further 20% of sales were generated by its ‘Scentium’ flavours business, primarily for food, pharmaceutical and oral care applications.

Croda said the acquisition was expected to be earnings accretive in the first full financial year following completion, and “strongly accretive” after that, driven by continued strong EBITDA growth and the realisation of significant combinational synergies.

The acquisition's return on invested capital was expected to exceed Croda's cost of capital within five years.

It said the transaction would be funded by a combination of its existing debt facilities and the proceeds of an equity placing, representing 8% of Croda's issued share capital.

The placing of new shares to institutional investors was expected to raise net proceeds of £600m.

In addition to the placing, Croda said there would be an offer on the PrimaryBid platform of new shares at the placing price, to provide retail investors with an opportunity to participate.

On completion, Croda's leverage was expected to increase “modestly” to about 2x EBITDA, and was expected to reduce to 1.6x EBITDA by the end of 2021.

The acquisition was expected to close by the end of 2020.

“Our expansion into the fast-growing fragrances and flavours market further increases our exposure to consumer care markets and adds another exciting growth adjacency to Croda's market-leading position,” said chief executive officer Steve Foots.

“We have known Iberchem's team for many years and their business is highly compatible with Croda's.

“Iberchem stands out with its significant exposure to emerging markets, extensive product portfolio well placed to adapt to sustainability trends, strong customer focus and research and development capability, and 10-year track record of consistent year-on-year growth.”

Foots said that, by bringing the businesses together, Croda would create a new, full service offering in consumer care markets and a “compelling platform” from which to grow the combined business.

“We look forward to welcoming our new colleagues to Croda and leveraging our respective networks and expertise.”

At 0813 GMT, shares in Croda International were up 1.02% at 6,146p.