DSM will use its global reach to drive its latest acquisition - fish-sourced omega-3 leader, Ocean Nutrition Canada, beyond its core North American market – but sees opportunities in generic drugs that may prove more lucrative.
DSM board member Stephan Tanda told us the drug route was largely unexplored as ONC does little business in that space, but events were conspiring in its favour as GlaxoSmithKline’s blockbuster lipid regulator, Lovaza, is set to go off patent later this year.
“So there is the option to participate in the generic drug space, but this market is yet to be developed, so it remains an option,” Tanda said, noting that did not detract from DSM’s ambition to, “accelerate penetration” into European and emerging food and supplement markets.
“We chose ONC because they are the biggest fish-sourced, omega-3 oil supplier in the world.”
The C$540m (€420m) move for ONC comes less than two years after the Dutch company paid about €800m for algae-sourced DHA omega-3 leader, Martek Biosciences. Martek has contributed significantly to DSM Nutritional Products revenues and profits, and has benefitted from distribution and marketing synergies under DSM’s new Nutritional Lipids division that will also house ONC.
The two complement each other, Tanda said, with Martek’s infant food orientation and ONC’s greater strength in supplements and foods with its DHA (docosahexaenoic acid) and EPA (eicosapentaenoic acid) forms.
DHA and EPA are most strongly linked to brain, heart and eye benefits in the scientific literature and have won health claims off the back of that in various markets including Europe and North America.
The deal gives DSM a stronghold in the North American dietary supplements market, while gaining access to ONC’s Powder-loc omega-3 manufacturing technologies that can be transferred to other parts of its portfolio.
It is DSM’s fifth acquisition since it announced in 2010 its shift from being a fine chemicals player with a line in nutrients to a more focused life sciences company, and it has made no secret of its ongoing ambition (and funds) to buy in more nutritional firms and processes.
One analyst told Reuters the move was in line with DSM acquisition strategies and should deliver healthy margins.
"Doing more add-on acquisitions in nutrition makes sense for DSM. Smaller deals such as this are easier to integrate and it being non-listed results in DSM paying a reasonable multiple for such a high-margin business," said ING analyst Fabian Smeets.
"There is a strategic fit, there should be growth opportunities, and the deal is EPS (earnings per share) accretive ... in 2013 already."
ONC forecast sales of about C$190m (€147m) for 2012 with EBITDA earnings up to C$60m (€46m). The business has grown by about 20% per year for the past five years buoyed by bulging US supplement sales and growing numbers of functional foods using its MEG-3 branded ingredient.
Feike Sijbesma, CEO and chairman of the DSM Managing Board, said in a statement: "After our successful acquisition of Martek in 2011, the acquisition of Ocean Nutrition Canada is the logical next step in developing our Nutritional Lipids into a major growth platform for our Nutrition cluster.”
It recently celebrated selling 100 billion servings of the ingredient.
15-year-old Ocean Nutrition Canada employs 415 people and has production facilities in Canada, the US and Peru.