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Botanical extracts sector sees surge in demand as M&A activity booms
FoodBev Media

FoodBev Media

4 May 2023

Botanical extracts sector sees surge in demand as M&A activity booms

Botanical extracts are everywhere. They give food and beverage products a distinct character, flavour, colour and/or added functionality. Given the growing popularity of botanicals, it is no wonder that more companies are making strategic investments in the sector. Oliver North, associate director at Oghma Partners, discusses the latest surge in demand for botanical extracts, as M&A activity is on the rise. M&A activity in the botanical extracts sector is poised for growth due to various factors. The primary reason is the increasing demand for natural and organic products, leading to an increased need for botanical extracts in various industries such as food and beverage, nutraceuticals, pharmaceuticals and personal care. These extracts are sourced from plants and are widely used as natural ingredients in supplements, cosmetics, and food and beverages. Their medicinal properties have been known for a long time, and the growing preference for natural ingredients over synthetic products has led to increased demand for botanical extracts in recent years. The second reason for the growth in M&A activity in the botanical extracts sector is the increasing trend of vertical integration. Companies are looking to acquire upstream or downstream businesses to enhance their supply chain efficiency and gain better control over the production process. For example, a botanical extract blender may acquire a company with extraction capabilities or that cultivates plants to ensure a consistent and reliable supply of raw materials. Furthermore, the Covid-19 pandemic has accelerated the demand for natural and organic products, including botanical extracts. Consumers are increasingly seeking products that enhance their immune systems and overall health, driving the demand for natural supplements and ingredients. Finally, the botanical extracts sector is an attractive investment opportunity due to its high growth potential and strong market demand. The global plant extracts market is expected to reach $22.5bn by 2030, representing a CAGR of c. 9.0% from 2021 to 2030, according to Precedence Research.

A boost for botanicals Amid this increasing demand for botanical extracts, Oghma Partners conducted an M&A review of the European Botanical Extracts Market from 2012 to 2023 YTD (March), focusing on deals where the target company supplies botanical extracts into the nutraceutical or food end markets. The review revealed that consolidation within the European botanical extracts market can be classified into three categories. The first category consists of mid-tier ingredients players such as Döhler, who acquired Natural Origins in 2017. Natural Origins is a France-based supplier of natural health ingredients supported by scientific research, serving various industries including dietary supplements, food and beverage, nutrition, cosmetics and pharmaceuticals. Other mid-tier players such as Nactarome (formerly Aromata Group) made multiple acquisitions in the space including FIAS (2021), an Italy-based flavour extraction company, and Nactis Flavours (2020), a producer of flavours, aromatics and functional ingredients based in France. The second category includes larger global ingredients players seeking to diversify their offerings beyond their core capabilities. For example, Givaudan completed numerous acquisitions during the period, including Naturex (2018), a French plant-based speciality ingredients producer for the food, health and cosmetic industries, and Albert Vieille (2019), an aromatic raw material producer based in France. Other active companies in this space include ABF, Firmenich, Kerry and Symrise. Lastly, there are private equity firms with well-defined strategies to invest in botanical extract producers benefiting from the favourable growth trends in nutraceuticals and increasing preference for healthier food options among consumers. For example, ArchiMed has made multiple acquisitions, including Fytexia in 2016 and Monteloeder in 2022. The Riverside Company and Merieux Equity Partners are also active, with respective acquisitions of HealthTech BioActives (HTBA) in 2019 and Plantex in 2020.

A word of caution While there is an abundance of M&A activity in the botanical extracts industry, companies need to be aware of the potential challenges and risks involved. One major risk is related to the valuation expectations of the target company – particularly in a rapidly growing sector such as this. Acquirers must carefully evaluate the transaction's potential benefits and consider whether the target company's price is reasonable and justifiable. This challenge may be compounded by a limited number of available targets in the space, creating a competitive environment where multiple acquirers are competing for the same target company. This, in turn, can drive up the price and make it more challenging to achieve a reasonable valuation for the acquirer. Additionally, the recent decline in valuations of the larger quoted ingredients companies could exacerbate the gap between acquirers and sellers in terms of valuation expectations. In conclusion, the botanical extracts sector is expected to grow, driven by the increasing demand for natural and organic products, vertical integration, strong market demand, and the Covid-19 pandemic. Despite the challenges mentioned previously, increased M&A activity is expected in the sector as companies look to expand their product portfolios, gain better control over the production process, and strengthen their market position.

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