Olam to buy US spice firm ahead of food ingredients unit IPO

A decision on where to list the business will likely be made by the summer.
A decision on where to list the business will likely be made by the summer.PHOTO: OLAM INTERNATIONAL

SINGAPORE (THE BUSINESS TIMES, REUTERS) - Olam International said on Thursday (April 29) its soon-to-be listed food ingredients business will buy US spice company Olde Thompson at an enterprise value of US$950 million (S$1.26 billion).

The agri-food giant plans to separate and list Olam Food Ingredients (OFI), which includes cocoa, coffee, and edible nuts, by the first half of next year as part of a wider restructuring that would see it split into two new operating businesses.

A decision on where to list the business will likely be made by the summer, Olam International chief executive officer Sunny Verghese had said in February.

Olam's purchase of the 77-year-old US private-label spice supplier from its management shareholders and Kainos Capital is expected to support earnings and margins from its first year in the OFI fold, potentially adding US$25 million to US$30 million towards core earnings.

“This transaction builds on our long 15-year partnership with Olde Thompson,” OFI chief executive officer A. Shekhar said. “Growing our offerings of private label solutions is right at the heart of OFI’s strategy - and within that spices is one of the most attractive and growing categories, especially in the US.” 

The deal, he added, would help bridge the gap between OFI’s presence in production and supply to dealing with US retail customers. The transaction is expected to close in the second quarter.

Olam shares rose 0.6 per cent in early trading on Thursday to $1.75.

Olam said the total consideration sum fore the acquisition will be subject to net working capital adjustment at closing based on good-faith estimates provided by Olde Thompson, estimated transaction expenses, as well as a US$5 million adjustment escrow payment, among others.

For illustrative purposes, Olam projects a total consideration of approximately US$727.5 million based on the unaudited FY2020 financial statements of Olde Thompson.

In its announcement, Olam also said the proposed purchase will build on its recent two acquisitions in the North American spices sector, namely US-based chilli pepper business Mizkan America, and the onion ingredients business of Cascade Specialties.

Highlighting OFI's spices business as an "attractive and growing part of (the unit's) overall portfolio", Olam said Olde Thompson will create a substantive growth platform for OFI to provide similar sustainable and innovative retail solutions across its other products.

The proposed deal will also enable OFI to combine its strengths in global origination and sustainable supply chains with Olde Thompson's capabilities to provide retail spice solutions to offer differentiated value to customers, it added.