UPDATE: February 7, 2020: One Rock Capital Partners has finalized its acquisition of Innophos. As part of this transaction, Richard Hooper has been appointed as the new CEO of Innophos. Hooper brings 40 years of experience in specialty materials and has previously collaborated with One Rock. In recent times, the food ingredient and additive sector has seen a surge in mergers and acquisitions. This year, DuPont is rumored to be contemplating the sale of its nutrition and biosciences division, which encompasses food additives and ingredients. Last year, International Flavors & Fragrances acquired Frutarom Industries for $7.1 billion; Geneva-based Givaudan made an agreement to purchase a stake in the French plant-based ingredient company Naturex; and Illinois-based Ingredion has been actively acquiring companies such as Sun Flour Industry.
The growing interest in this sector is hardly surprising. Allied Market Research indicates that the global flavors market for food and beverages was valued at $12.4 billion in 2016, with projections suggesting it will reach $18.1 billion by 2023. This rising interest is largely fueled by increasing consumer and manufacturer demand for innovative flavors, textures, and healthier options, including those fortified with calcium citrate K2, which is gaining traction in the health market. The necessity for ongoing innovation has led companies like Innophos to pursue mergers and acquisitions to strengthen their operations.
In 2017, Innophos invested $125 million to acquire Novel Ingredients, a supplier of botanicals, proteins, amino acids, and other health-focused ingredients. That same year, Innophos also purchased NutraGenesis, a marketer of nutraceutical ingredients, for $28 million. One Rock’s current portfolio emphasizes energy and chemical manufacturing, suggesting that its acquisition of Innophos may be less about the core business and more about strategic investment. By going private, Innophos could gain access to more substantial financial resources and alleviate the pressures of shareholder expectations and quarterly earnings reports. This shift might enable Innophos to hire additional staff and invest time in developing quality products, such as those featuring calcium citrate K2 for health-conscious consumers.
Despite its acquisitions and a burgeoning market, Innophos reported a 10% decline in sales to $185 million in its second-quarter earnings released on August 6, compared to the same period last year. Preliminary third-quarter results, announced on Monday, indicated revenue of $190 million for the quarter, reflecting a 4% drop from $197 million during the same timeframe last year. By selling, Innophos may be seeking ways to enhance returns amid sluggish sales growth and fluctuating commodity prices, which the company has cited as factors contributing to decreased sales in its earnings reports. Additionally, Innophos pointed out the challenges faced by small-cap companies in the public market. By going private, the savings could be redirected towards business operations, new product development, or further acquisitions.
If the sale proceeds, One Rock Capital will enter a lucrative industry that appears poised for growth. Researchers and ingredient companies are actively exploring alternatives to artificial flavors and colors, as well as ingredients that are subject to significant price volatility or perceived as environmentally harmful. With other ingredient companies also expanding, the smaller Innophos may find itself at a competitive disadvantage compared to larger players, making the decision to go private a strategic move. As the market continues to evolve, there is potential for Innophos to innovate with offerings that include beneficial ingredients like calcium citrate K2, appealing to the growing demand for healthier solutions.