IFF agrees to buy Israel-based Frutarom

International Flavors and Fragrances Inc. (IFF) has agreed to acquire Israel-based natural ingredients producer Frutarom for about $7.1 billion. The transaction, which includes assumption of Frutarom’s debt, is expected to close in six to nine months and stands at an 11% premium to Frutarom’s closing price on May 6.

The deal will be financed with cash, debt and equity, and is expected to be neutral to adjusted cash EPS in the first year and double-digit accretive to adjusted cash EPS in the second year. The companies also expect to achieve around $145 million in cost synergies by the third year of closing.

Frutarom sells over 70,000 products worldwide and its largest customers include Nestle and Unilever (UN). The deal is subject to regulatory as well as Frutarom shareholder approval. The combined company is estimated to generate around $5.3 billion in revenue in 2018. After the acquisition, Frutarom’s CEO Ori Yehudai will serve in a strategic advisory position with IFF.

As consolidation increases in the flavors and fragrances industry, there is a growing need among companies to team up through strategic transactions to explore and create growth opportunities as well as deal with issues like such as materials costs. Swiss company Givaudan SA picked up Naturex earlier this year, and other companies in the industry too have made potentially profitable acquisitions.

There is an increasing demand among consumers for natural ingredients in both food and beauty products. As consumers move away from artificial flavors and colors, companies too sense the need to move in the same direction. Frutarom comes with a wide and attractive portfolio of natural products and ingredients, which IFF expects will give it a boost in the industry amid such shifts in trends. IFF will also gain access to Frutarom’s wide customer base.

If the deal goes through, this would be the second largest acquisition of an Israel-based company after Intel’s (INTC) acquisition of Mobileye.