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AMSTERDAM (Reuters) - Dutch food and chemicals firm DSM (DSMN.AS) is buying the world's biggest producer of a fish oil extract believed to boost brain power for about 420 million euros ($534 million), as it targets parts of the food sector resistant to economic swings.
DSM, which has sold off much of its cyclical bulk chemicals business in recent years to turn itself into the world's largest vitamins maker, said on Friday it was buying Ocean Nutrition Canada (ONC) in an all-cash deal.
Halifax, Nova Scotia-based ONC produces Omega-3 fatty acids derived from fish oil that are used in dietary supplements and in the food and drink sectors, and are believed to help improve memory performance and relieve depression.
"The body of scientific evidence on the health benefits of Omega-3 is ever-expanding and consumer awareness of these health benefits is very strong in the United Kingdom, the United States, European countries and even in China," said Stephan Tanda, the executive responsible for DSM's nutrition business.
"That gives us high confidence that consumers will increasingly consume Omega-3," Tanda told reporters, adding that he uses the products himself.
Analysts said the deal complemented DSM's acquisition of U.S. foods ingredients maker Martek in February 2011 and would help to boost its nutrition and food business, which DSM expects to achieve annual sales of about 4 billion euros in 2013.
"Martek produces algae-based polyunsaturated fatty acids versus the fish-oil derived products from Nutrition Canada. These products mainly serve different market segments with different pricing levels," said KBC Securities analyst Wim Hoste in a research note.
"DSM has not quantified potential synergies but expects them to be substantial. These synergies should come from an enlarged distribution, marketing, product development perspective as well as some operational efficiency improvements," he added.
DSM shares, up 11 percent over the past six months, were 1.4 percent lower at 39.095 euros by 0900 GMT in a weak Amsterdam market .AEX, down 0.8 percent.
ONC has shown average annual sales growth of about 20 percent over the past five years in U.S. dollar terms. It has production sites in Canada, the United States and Peru, and expects 2012 sales of about C$190 million ($187 million) with earnings before interest, tax, depreciation and amortization of C$55-60 million, DSM said.
"Doing more add-on acquisitions in nutrition makes sense for DSM. Smaller deals such as this are easier to integrate and it being non-listed results in DSM paying a reasonable multiple for such a high-margin business," ING analyst Fabian Smeets said.
"There is a strategic fit, there should be growth opportunities, and the deal is EPS (earnings per share) accretive ... in 2013 already."
The acquisition marks the third substantial deal so far this year for DSM, which said it still has about 2 billion euros left in its warchest.
DSM bought Martek for $1.1 billion in February 2011, and moved into the biofuels market in early 2012 when it announced a 50-50 joint venture with private U.S. ethanol maker POET, one of the biggest ethanol producers in the world.
Earlier this month, DSM said it was buying U.S. medical device-maker Kensey Nash Corp KNSY.O for $360 million to strengthen its biomedical business.
($1 = 1.0164 Canadian dollars)
Reporting by Sara Webb; Editing by Mark Potter