The vitamins, carotenoids and enzyme supplier said is acquiring a 75% shareholding in the joint venture.
DSM paid out a cash consideration of about €135m, which, it explained, represented an enterprise value (EV)/earnings before interest, taxes, depreciation, and amortization (EBITDA) multiple of around 6x, based on the estimated 2019 EBITDA generated by Nenter’s vitamin E business.
A spokesperson for DSM said a joint venture was preferred over an outright acquisition of Nenter.
"We announced a joint venture as we want to keep a local partner who is very well connected in the local and regional environment," he told us.
The joint venture will acquire and operate the vitamin E production facilities in Jingzhou, Hubei, China and will have a minority shareholding in Nenter’s Shishou facility, also located in Hubei.
The deal is subject to several regulatory approvals. DSM said it expects it to close either in the second or third quarter of 2019.
The JV will produce vitamin E on an exclusive basis for DSM, subject to existing supply agreements of Nenter and there will be a profit share agreement in place between the two firms.
“Through this joint venture, we will boost our vitamin E production and enhance our position in this market,” said the Dutch group.
When asked about the capacity boost the JV would bring to DSM, the spokesperson remain tight-lipped.
DSM would only say the new partnership will allow it to continue to grow organically in vitamin E, an essential ingredient in its animal nutrition premix products.
It said the move will also strengthen its global supply chain footprint, enabling it to offer locally produced vitamin E in China and Asia Pacific, next to its facilities in Switzerland. "This will support DSM’s strategic actions to reduce its working capital requirements by simplifying its supply chain.”
In conjunction with Nenter, DSM said it will renovate the production facilities and improve the operational performance to secure high quality and sustainable supply of the vitamin, while ensuring compliance with its safety, health and sustainability standards.
Temporary vitamin price hike
There were huge supply disruptions in vitamin A and E last year, due to a fire at a precursor plant run by BASF. In October 2018, DSM reported that it benefitted from a €290m additional adjusted EBITDA contribution in the first nine months for FY2018, resulting from the exceptional but temporary vitamin price environment arising out of the shortage of those key animal nutrition ingredients.
Although primarily known as an efficacious biological antioxidant, DSM says vitamin E has more benefits, including maintenance of the structural integrity of all tissues and substantial contribution to optimum health and disease resistance of farm animals due to its modulating effects on the immune system.