Commission clears double flavour purchase

The European Commission this week gave the go ahead to private equity fund EQT for the acquisition of two dominant German-based flavour and fragrances manufacturers, Haarmann & Reimer and Dragoco. The combined company will have 5,800 employees at some 30 production facilities around the world with a potential of sales of some €1,245 million, allowing it to join the ranks of the top industry players.

According to a Commission statement, market investigations have shown that even after the acquisition there will be sufficient competition in the European market for the flavours, fragrances, aroma chemicals and cosmetic ingredients concerned.

In August this year the Commission received a notification of a proposed concentration by which EQT Northern Europe, a private equity fund ultimately controlled by Sweden's Investor, would control the whole of Dragoco and H&R by way of purchase of shares and assets. The acquisition would be carried out through a German-based company especially set up for this purpose, called Isis Vermögensverwaltung.

Haarmann & Reimer​ is currently owned by Germany's Bayer group and Dragoco is controlled by its CEO, Horst-Otto Gerberding, who will sell his share in the company in return for a minority stake in Isis. Gerberding is set to be the CEO of the newly formed company resulting from the transaction.

The Commission added that EQT's strategy is to invest in medium-sized companies in order to generate returns for its investors. It intends to combine H&R and Dragoco to subsequently list the merged entity on the stock exchange.

Both H&R and Dragoco​ are based in Holzminden, Germany, and manufacture fragrances, flavours, aroma chemicals and cosmetic ingredients, but their combined market share will not exceed 15 per cent for any of the ingredients concerned. The Commission also asserted that the customers for such products, which include the food and beverages industries as well as cosmetics, will not be overly dependent on H&R/Dragoco since they source their supplies throughout Europe and possibly elsewhere.

When the proposed sale was announced earlier this year, Swiss flavours and fragrances company Givaudan said it would not change its goal to become industry leader and was still on the lookout for acquisitions.

"It looks like an interesting and very elaborate construction we see here. We shall see how this new company will position itself in the marketplace, but a priori I don't see that it really changes the competitive landscape,"​ Givaudan chief executive Juerg Witmer said in an interview with Reuters​.

He added that the new company's sales would still be well short of Givaudan's SF2.8 billion. Givaudan so far remains the clear number two behind International Flavors and Fragrances.

This week the Commission stressed that it had also taken into account the presence of significant competitors with the capacity and ability to design and manufacture a wide range of fragrances, flavours, aroma chemicals and cosmetic ingredients for a large variety of end products. But by giving the green light to a Dragoco-H&R entity the Commission has ensured that competition in the flavours and fragrance market will move up a gear.