It’s unclear why Innophos might be considering a sale at this moment. However, Bloomberg reported that several ingredient companies have been engaging in mergers and acquisitions as a strategy to enhance returns amid sluggish sales growth and fluctuating raw material prices. Innophos is not alone in this line of thinking; DuPont is contemplating divesting its nutrition and biosciences division, estimated to be worth around $20 billion. If Innophos proceeds with a sale, it would mark a significant shift for a company that, just over two years ago, was focused on growth through acquisitions. In the first half of 2017, the company aimed to increase revenue by 70%—targeting $1.25 billion by 2022—and sought to elevate its food, health, and nutrition segment’s contribution to sales from 52% to 75%.
Innophos began this journey by completing two acquisitions in 2017, including a $125 million purchase of Novel Ingredients, which was intended to diversify its portfolio and capitalize on emerging trends in health, wellness, and nutrition. Additionally, the company acquired NutraGenesis, which specializes in nutraceutical ingredients, for $28 million. Despite these initiatives, recent earnings reports have been disheartening. In its second-quarter report from August 6, Innophos reported a 10% decline in sales, amounting to $185 million compared to the prior year. The company attributed this drop to the winding down of its nutrition trading business, reduced demand from customer destocking, losses from Midwest floods, and ongoing tariff impacts.
Kim Ann Mink, chairman, president, and CEO of Innophos, stated that the company’s adjusted EBITDA increased by 129 basis points in the second quarter. She expressed confidence that the company’s strategic initiatives were beginning to reshape its growth profile, with EBITDA growth stemming from “leveraging our improved mix, pricing power momentum, cost management, and a lower cost structure.”
It remains uncertain which ingredient companies might pursue the acquisition of Innophos. Potential candidates such as Ingredion, IFF, or Kerry Group may find Innophos’ portfolio of high-margin specialty grade ingredients and health-and-wellness products appealing. These companies have been active in acquisitions recently. After taking the lead at Ingredion last summer, CEO Jim Zallie indicated that the company was seeking bolt-on deals as well as larger transformational opportunities. IFF has been rapidly acquiring companies to enhance its offerings in flavor and texture solutions, including the $7.1 billion acquisition of Frutarom, a natural ingredients and flavors company based in Israel. Meanwhile, Kerry has expanded its portfolio through the acquisition of various ingredient companies, including probiotics leader Ganeden in 2017, Fleischmann’s Vinegar, savory flavor company Ariake USA, and the coatings and seasonings division of Southeastern Mills last year.
Should a larger ingredient company make an offer for Innophos, it could introduce new ideas and investments, potentially boosting the company’s stock price beyond its current stagnation. According to Simply Wall St, Innophos has a market capitalization of approximately $565 million, classifying it as a small-cap stock. Nonetheless, the site noted, “it is substantial enough to attract the interest of institutional investors.” With its diverse offerings, including products that could be seen as a Citracal equivalent, Innophos may present a valuable opportunity for the right buyer.