IFF CEO on the Frutarom mega-deal: 'This transaction is all about growth'

By Elaine Watson contact

- Last updated on GMT

Andreas Fibig: "I hope that we will come to the stage when people will come to realize that some of the biotech solutions are more sustainable..."
Andreas Fibig: "I hope that we will come to the stage when people will come to realize that some of the biotech solutions are more sustainable..."
Terms such as ‘streamlining overheads’ and ‘footprint optimization’ conjure up images of job cuts and factory closures, but IFF’s $7.1bn megadeal to acquire Israeli flavors and natural ingredients firm Frutarom is “all about growth, not cost savings at any price,” says chairman and CEO Andreas Fibig.

Speaking to FoodNavigator-USA after the deal – expected to close in 6-9 months – was announced,​ Fibig said: “It’s about cross selling and satisfying our customers and it’s going to be positive for employees. We’re also very excited to bring key talent from Frutarom into IFF.”

While the transition team will explore how to optimize the companies’ combined footprint in terms of laboratories and production facilities, “the first synergy in terms of size is on the procurement side,​” added Fibig, a pharmaceutical industry veteran who joined the IFF board in 2011 and became CEO and chairman in 2014.

“The other important question for me is how can we connect our scientists so we can come up with even better solutions together?

Frutarom’s biggest customer accounts for less than 2% of its sales

When it comes to market access, meanwhile, there is relatively little overlap between New York based IFF and Israel-based Frutarom, he said.

Frutarom’s biggest customer accounts for less than 2% of its sales… ithas around 30,000 customers, mostly small and medium size customers, whereas we have 3,000. Of these, probably 50% are global customers and 50% are regional and local players although we have reached smaller companies through TastePoint ​[an IFF business launched in 2017 combining the operations of David Michael & Co and Ottens Flavors designed to service mid-market customers in North America]."

Asked whether the respective sales teams would remain in place, he said: “That’s the first step as we don’t want to disrupt the front end to customers. We just have to make sure we educate everybody about the enhanced portfolio.”

Andreas-Fibig-IFF-chairmand-and-CEO-2018

“My personal view is that on the consumer side, perception is reality, and the perception is that natural is good and synthetic is bad, when we know that this is just not true. You can eat the wrong 100% organic mushroom and you’re dead tomorrow, and you can eat 100% synthetic aspirin and it can help you live longer.”

‘There has to be a differentiating factor’

So what’s behind this deal? Is it about buying customer relationships and market access? Increasing scale and driving efficiencies? Or more about acquiring ingredient technologies and IP?

All of the above, although the latter (R&D) is what ultimately helps to deliver the former (market access) in the longer-term, added Fibig, ​who observed that the flavors/fragrances market is already pretty consolidated with deals now extending into “adjacent​” businesses (colors, natural antioxidants etc), reflected both in the Frutarom deal and Givaudan’s recent acquisition of Naturex.

Since I arrived at IFF three and half years ago, we’ve put a lot of emphasis on R&D. My first question is always how much more value can this deliver vs what our competitors are offering? There has to be a differentiating factor.”

Natural ingredients: ‘Everything where IP plays a role attracts and sparks my interest’

The acquisition of Frutarom “helps us to get into some very interesting growth platforms,” ​he added. “In particular natural colors is a growing business particularly in North America where the transition to natural still has to be done​, and botanicals are becoming super important as well. In North America, more than 90% of our briefs are briefs for natural product solutions.

“The enzyme business is also very interesting, particularly Enzymotec ​[owned by Frutarom, which has developed technology enabling it to extract functional lipids from natural sources and use enzymes to synthesize lipids].

“They have a very strong patent position for many of their products and as someone that spent 28 years in the pharmaceutical industry, everything where IP plays a role attracts and sparks my interest.”

"Our pipeline includes incredible capabilities on natural modulation, new fragrance molecules, and active cosmetic ingredients such as a new peptide that actually restores color to grey hair called Greyverse​.”

Where next for IFF/Frutarom? Sweet taste modulation, protein masking

Continuing areas of focus for IFF include natural modulators that enable companies to reduce sugar, and flavor solutions that can help formulators tackle some of the off tastes associated with plant-based proteins and other natural ingredients, he said.

Are natural ingredients more sustainable?

There will also be more research into sourcing botanicals with higher yields, but also exploring whether there are more sustainable ways to produce various molecules (via fermentation vs extraction for example), although this prompts challenging questions about the resulting ingredients’ ‘natural’ credentials, he acknowledged.

“Frutarom has patents on plants that produce higher yields and this is very exciting,”​ but this approach can only take you so far, he said.

“Take vanilla. Prices have risen from $20/kg to $500+ in the last two and half years. People like natural vanilla extracts but is that sustainable, is that affordable? What will be the next solution? Are biotech solutions seen as ‘natural’ and what can we do here?

“My personal view is that on the consumer side, perception is reality and that is natural is good and synthetic is bad, when we know that this is just not true. You can eat the wrong 100% organic mushroom and you’re dead tomorrow, and you can eat 100% synthetic aspirin and it can help you live longer.

“I hope that through the angle of sustainability we will come to the stage when people will come to realize that some of the biotech solutions are more sustainable.  I’d like to see a more nuanced conversation about genetic engineering that’s based on the scientific facts, but that might be just a dream.”

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