The Dark Secrets & Hidden Agenda of IFF

Anyone operating in the the food and ingredients industry right now will have heard of the ongoing divestment activities by IFF (International Flavours & Fragrances Inc.) a global leader in the manufacture and sale of fragrances, flavours, food ingredients, nutrition products, and cosmetic products.

And whilst it all sounds very exciting, what are the real motives behind chopping off the arms and legs of the organisation to then be sold as parts?

At its most basic level, the term "divestment" simply refers to a company selling off part or all of its business. This can be done for any number of reasons, and when it comes to larger corporations such as the IFF, the stakes are often much higher.

Equally the opportunity for potential buyers becomes higher too.

When considering divestment, companies may examine different factors depending on their strategic objectives, market position, and overall financial performance. However, two main drivers of divestment are improving financial performance and "responding to changing market conditions".

IFF has divested several of its businesses over the years through a combination of sales, mergers, and spin-offs including the most recent ￡220m sale of its Flavour Speciality Ingredients business to EXPONENT PRIVATE EQUITY LLP

Additionally, the company has spun off its pharma solutions business into a standalone entity called Avantor.

And in 2021, IFF completed the merger with DuPont's Nutrition and Biosciences business, creating a new company called DuPont Nutrition & Biosciences. The merger is expected to achieve $300 million in cost synergies and $400 million in revenue synergies by the end of 2023.

So why all the noise now? What's changed?

The official line...

By divesting non-core or underperforming businesses, IFF has been able to allocate resources more effectively, improve financial performance, and pursue growth opportunities in its key markets.

Under the cover of darkness... 

As a leading global manufacturer of flavors, fragrances, and cosmetic actives, IFF has strategically reviewed its portfolio and identified the need to simplify and focus on its core capabilities. This has led to the decision to divest some of its non-core businesses.

So what is to be gained by IFF in all of this?

Well...

Cold hard cash for one!

Firstly, divesting non-core businesses can improve the company's financial performance. IFF can allocate more resources to its core businesses and improve profitability by focusing on its core capabilities. Non-core businesses can be a distraction and may generate a different level of return on investment than core businesses.

Following the sale of it's microbial division to Lanxess, IFF commented that the proceeds would be used to reduce current outstanding debt.

And there's nothing more empowering than being debt-free!

Weighing you down...

The divestment decision enables IFF to invest in growth opportunities. The company can pursue growth opportunities in its key markets by focusing on its core capabilities. This includes investing in research and development to create new products and technologies, expanding its global presence, and acquiring complementary businesses that create synergies instead of sapping resources.

Easy on the eye...

Finally, IFF's divestment decision is driven by the need to simplify its business model. Non-core businesses can create complexity and require resources to manage. IFF can streamline its operations and focus on its core businesses by divesting these businesses. This can improve efficiency and make the company more agile in responding to changes in the market.

By divesting non-core businesses, IFF can focus on its core capabilities and pursue growth in its key markets. This can lead to improved profitability, increased innovation, and a more streamlined organization. 

You did what...

One of the most significant divestment activities that IFF has undertaken was the sale of its legacy fruit preparations business to Frulact in 2021. The sale included IFF's manufacturing facility in Spain and its intellectual property, product portfolio, and customer relationships.

The divestment allowed IFF to focus on its core business activities in flavors and fragrances while also providing a new owner for the fruit preparations business that could invest and grow the business.

In addition to selling its fruit preparations business, IFF has also divested non-core assets and businesses not aligned with its strategic objectives.

The company has focused on expanding its presence in emerging markets and investing in its core fragrance and flavour businesses.

IFF continues to sell non-core assets and businesses not aligned with its strategic objectives, allowing it to free up resources and invest in areas with a competitive advantage.

The Bottom Line

There is nothing unusual about IFF chopping off arms and legs - it has several more that will grow bigger and stronger without the body needing to feed less "aligned" body parts.

(My analogy fell down at the last minute there I know)

The IFF has taken an active approach toward divesting some of its various businesses. By doing so, they have freed up capital for investment in new projects and markets, reduced their debt load, and focused on core competencies. 

While divesting from some of its traditional investments may have been necessary for IFF to remain competitive, such decisions are always associated with risks. In the long run, whether these moves will pay off remains to be seen, but only time will tell. In the meantime, we can continue to keep an eye on IFF and its various businesses to see how their moves play out.