Through this deal, DSM enters the mycotoxin risk management market “as the world leader” and the move will also enhance the company’s position in animal gut performance management market.
We reported on speculation over a potential deal yesterday.
The acquired businesses have combined sales of €330m and an adjusted EBITDA margin above 20% for the 12 months to the end of March 2020, with a high single-digit organic sales growth rate over the past five years, according to the Dutch group.
In an evaluation of the deal, commentators said DSM’s nutrition segment grew in the first quarter despite the pandemic, and the acquisition should help it benefit from a transition to more 'sustainable' farming globally.
"Still, Erber needs to increase its current €330m in revenue by over a tenth annually over the next five years for DSM to make a return broadly in line with an estimated 10% cost of capital, assuming a 20% operating margin and an 18% tax rate."
Erber Group’s animal nutrition and health businesses, Biomin and Romer Labs, specialize primarily in mycotoxin risk management, gut health performance management, and food and feed safety diagnostic solutions.
Sanphar and EFB, representing 7% of Erber Group’s total sales, are not included in the deal.
Geraldine Matchett and Dimitri de Vreeze, Co-CEOs of DSM, said: “These are great businesses with strong and sustained track records of profitable growth and attractive margins. Biomin and Romer Labs will help strengthen and accelerate the growth of our specialty animal nutrition and health offering, including our big data and diagnostic capabilities, and it is exciting to be entrusted to take these family-founded businesses forward.”
The value of the transaction represents an EV/EBITDA multiple of about 14x the 2020 EBITDA, fiscal year ending September 2020. The deal is expected to be earnings enhancing in the first year upon completion, said DSM.
The acquisition will be debt financed, with committed bridge financing in place. DSM said it continues to benefit from a strong balance sheet and remains committed to maintaining a strong investment grade credit profile.
Digging deeper into the what the acquired businesses bring to DSM, the company outlined the Erber Group’s state-of-the-art research and manufacturing facilities and 1,200 employees, located in different regions globally.
The acquisition is a strategic opportunity that provides revenue-enhancing synergies from the combined offering, global customer base, and complementary geographic strengths, it stressed. DSM's rationale for the acquisition is presented in detail in a report for investors.
"Biomin’s patented and proprietary technology provides the most scientifically advanced mycotoxin protection available. Biomin is also a major producer of phytogenic and probiotic feed alternatives to antibiotics, which complements and strengthens DSM’s position in the rapidly growing global eubiotics market for improving animal gut health.
“Romer Labs is at the forefront of diagnostic technology with innovative testing solutions for the analysis of mycotoxins in feed and food, food allergens and pathogens as well as veterinary drug residues, with accredited full-service labs in Austria, UK, USA and Singapore. DSM’s extensive global network of food and beverage customers as well as feed customers stand to benefit from Romer Labs’ expertise and the combined group’s data-based quality assurance offering.”
The transaction, which remains subject to customary conditions, is expected to close in Q4 2020.