LONDON: Croda International Plc has agreed to acquire the entire issued share capital of Fragrance Spanish Topco S.L., trading as Iberchem, a leading global fragrances and flavours (F&F) company, for a total consideration of €820 million on a debt-free, cash-free basis.
Iberchem has been majority owned by Eurazeo since 2017. Iberchem was founded in 1985 and is headquartered in Murcia, Spain. As at August 2020, it had approximately 850 employees, 14 manufacturing facilities, 10 R&D centres and a commercial presence in 120 countries.
Approximately 80% of its sales are fragrances for Personal Care and Home Care products, areas where it has a similar customer profile to Croda. A further c.20% of sales are generated by its Scentium flavours business, principally for food, pharmaceutical and oral care applications.
The consideration will be funded via a combination of the Group’s existing debt facilities and the proceeds of an equity placing, representing c.8% of Croda’s issued share capital. The placing of new ordinary shares in the capital of the Company to institutional investors is expected to raise net proceeds of c.£600m.
The Placing is being conducted through an accelerated bookbuild which will be launched immediately following release of this announcement. Morgan Stanley & Co. International plc and HSBC Bank plc (“HSBC”) are acting as joint global co-ordinators and joint bookrunners in respect of the Placing and have agreed to underwrite the Placing.
In addition to the Placing, there will be an offer made by the Company on the PrimaryBid platform of new ordinary shares in the capital of the Company at the Placing Price, to provide retail investors with an opportunity to participate. A separate announcement will be made shortly regarding the Retail Offer and its terms.
On completion, Croda’s leverage is expected to increase modestly to approximately 2 times EBITDA and is expected to reduce to c.1.6 times EBITDA by the end of 2021, with the structure of the financing preserving the Group’s robust financial flexibility and balance sheet strength.
The acquisition is expected to close by the end of 2020.
From 2021, Croda will report under four sectors – Consumer Care, Life Sciences, Performance Technologies and Industrial Chemicals. The Consumer Care sector will comprise the current Personal Care business, the Home Care business unit which currently sits within Performance Technologies, and Iberchem. Comparative financial information for 2020 will be provided in Croda’s Full Year 2020 financial results, due for release in February 2021.
Trading in the second half of 2020 to the end of October was in line with expectations and the overall trading outlook for the full year remains unchanged. The full year charge for the groupwide share-based payment schemes is forecast to be higher than previously expected due to recent share price performance.
Core Business constant currency sales for the period were 1% above the prior year, excluding the impact of acquisitions, with a steady month-on-month recovery in both consumer and industrial markets. By sector, sales in Personal Care were 5% lower than the prior year, with product mix leading to modest margin dilution, as seen in the first half of the year.
Sales in Performance Technologies were also 5% behind the prior year, with profitability continuing to be impacted by its higher operating leverage. Life Sciences saw 18% growth on the prior year (before acquisition benefit), reflecting a rephasing of Crop Protection sales and strong organic growth in Health Care, accompanied by continuing margin development. Regionally, constant currency sales in both North America and Latin America returned to growth year on year, whilst Europe remained behind prior year and Asia was broadly flat, with China continuing to grow.
Steve Foots, Croda’s Chief Executive Officer, commented: “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.
“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 R&D capability, and 10 year track record of consistent year-on-year growth. By bringing our businesses together, we are creating a new, full service offering to our customers in Consumer Care markets and a compelling platform from which to grow the combined business in the years ahead. We look forward to welcoming our new colleagues to Croda and leveraging our respective networks and expertise.”