Innophos goes on acquisition hunt

by Jeff Gelski
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Meat phosphates, Innophos
Innophos, known for phosphates, wants to expand and seeks more than $450 million in inorganic sales growth.

CRANBURY, N.J. – Innophos will seek acquisitions in the food, health and nutrition markets as it targets more than $450 million in additional sales via inorganic growth by 2022, the Cranbury-based company said April 5.

An ingredients company with a history in phosphates, Innophos through a five-year growth plan called “Vision 2022: The Path to Revitalized Growth” seeks to grow annual revenues to $1.25 billion by 2022, which would be up more than 70% from $725,345,000 in net sales in the fiscal year ended Dec. 31, 2016.

Kim Ann Mink, Innophos
Kim Ann Mink, chairman of the board, c.e.o. and president of Innophos

“We will more deeply align Innophos with consumer mega trends and be a clear partner of choice for our customers by offering a broader set of value-added and innovative technology-based vital ingredient solutions for the food, health and nutrition markets while retaining a select added-value business in industrial specialties,” said Kim Ann Mink, chairman of the board, chief executive officer and president, in an April 5 investor day call.

Innophos wants the share of its food, health and nutrition segment to increase to 75% of company sales from 52%, said Hermanus Kieftenbeld, chief financial officer and senior vice-president. Innophos selectively will defend and maintain its industrial specialties business, which accounted for nearly 40% of company sales in 2016, Ms. Mink said.

“At the same time, we will continue to evaluate our product portfolio and selectively prune low-margin, lower-value businesses from our portfolio,” she said.

Since the end markets served by the company’s principal phosphate technology are mature, Innophos sees little inherent growth potential there, said Sherry Duff, chief marketing and technology officer and senior vice-president. Ms. Mink added that the company’s core phosphates business is burdened by pricing pressure from competitors and soft market demand.

“First and foremost, we are seeking opportunities in market adjacencies that pivot our offerings beyond phosphate and diversify our participation in higher-growth food, health and nutrition market sub-segments,” Ms. Mink said. “Candidates must be recognized as a leader in the markets that they serve, provide revenue synergies from customer portfolio overlap and offer technology and science-based assets that are underpinned by intellectual property, and finally, attractive candidates will deliver credible human capital to enrich our knowledge base and customer engagement.”

Ideal candidates will deliver top-line growth in the range of 4% to 6%, EBITDA margin in the 20% range and a reliable cash conversion cycle, she said.

“In addition, we're looking for m.&a. targets that are asset-light, enhance our return on capital and will be e.p.s. accretive within year two,” she said.

Innophos already narrowed down a list of 800 potential acquisition targets to 50, Ms. Duff said.

“From there, we narrowed the field down even further to provide short-term focus and drive forward an action toward our inorganic growth initiatives” she said. “This is imperative, and I’m pleased to tell you that there are several attractive potential candidates on our short list that we are actively evaluating.”

Ms. Duff also spoke about how Innophos wants to align with consumer trends.

“Today’s consumers are making more informed decisions regarding their food choices, seeking clean labels and natural and organic products,” she said. “Consumers are more active and health-conscious than they were in the past and are seeking products that support their desire for a healthy, on-the-go lifestyle.”

Functional beverage and food ingredients combined represent a $3 billion market that offers growth opportunities in niche segments, she said.

“Personal care and animal nutrition are examples of marketed adjacencies that we currently serve in a very small way today, but that could be opportunities for growth should we acquire ingredient assets that have applications in these areas,” Ms. Duff said.

Within food, health and nutrition, Innophos also expects to deliver about $30 million of growth through innovation and margin management, Ms. Mink said.

Ms. Mink said Vision 2022 has four drivers: strengthening the core business, growing through acquisitions, pursuing partnerships, and improvement initiatives across all functions, roles and activities.

Innophos offers technology and science-driven ingredients systems to 900 customers in more than 70 countries with 62% of sales coming in North America, Ms. Mink said. The company has more than a century of experience in specialty phosphate manufacturing, she added.

Nearly three-quarters of the company’s 2016 revenues came from specialty phosphates sourced from the United States and Canada. Phosphates are used for leavening in baked foods; as binding and hydration agents in meat, seafood and poultry applications; for fluidity and protein dispersion in dairy products; and for mineral fortification and flavor enhancement in beverages. 
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