Harris Williams recently advised Universal Corporation, a leading global leaf tobacco supplier, on its acquisition of Silva International, a leading provider of dehydrated vegetable, herb, and select fruit ingredients to the food industry.
Here, senior professionals from the Harris Williams Consumer Group discuss why the ingredients sector is of interest to strategic and financial buyers, what made Silva a standout acquisition for Universal, and the key qualities other buyers should be looking for in the sector.
Why is the ingredients space appealing to buyers?
Alexander: Ingredient companies have generally held up well during the pandemic. People are eating out less and buying more groceries, many of which contain a wide variety of ingredients. That supports a large, diverse, and growing universe of ingredient customers, which protects ingredient manufacturers and distributors from the ups and downs of any one category or brand.
Cash: Growth is particularly strong for ingredient companies tied to trends like plant-based, better-for-you, and clean label. Silva falls into that category with its portfolio of vegetable, herb, and fruit-based ingredients, which are integral components of several well-known, high-growth food products.
What made Silva an appealing acquisition target for Universal?
Alexander: As a leaf tobacco supplier with agricultural processing experience, Universal is actively diversifying into the on-trend and high-growth plant-based ingredient market. In fact, Universal recently acquired FruitSmart, a fruit-focused ingredients company, and Silva was a logical addition to expand the company’s plant-based ingredient portfolio.
Warczak: Ingredient companies like Silva fit well into Universal’s core competencies—working with farmers, sourcing, global supply chain management, dehydration, and processing—and help Universal enter large and growing adjacent markets to accelerate growth.
Cash: Silva had built a very diverse and attractive customer base, with no meaningful customer concentration. That’s a rare trait in this sector. Plus, Universal saw some of Silva’s customers as potential customers for its existing ingredient offerings. The final element was Silva’s financial profile: It maintained its margins and cash flow generation, and saw an uptick in growth during the pandemic.
What are the key qualities other buyers should be looking for in the ingredients sector?
Alexander: To the point Brant just made, margins are important in the ingredients space, and indicate just how valuable a company is to its customers. There is definitely a commodity part of the sector, and you want to invest instead in value-added partners. That could mean companies that provide an R&D resource to customers, helping to identify new flavors and ingredients, or those that meet specific customer requirements with customized products. Conversely, single-product suppliers can be great acquisitions if they bring expertise in a new category of ingredients, which can broaden a company’s solutions set and deepen customer relationships.
Warczak: You can create substantial value by being nimble in your operations, and by always being ready to do new things for your customers—seeing your company as an innovation and thought partner, not just a supplier. That was incredibly valuable for Universal, which previously did not have the scale needed for a food ingredient-focused R&D function to help it grow in the sector. Silva brought that scale and expertise, which opens up a new level of growth potential for Universal’s food ingredients business.
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