By Athean Myat, Evan Schnell, James Ludlow and Nina Choophungart (Cornell University), and Ross Barrett, Tigran Minasian, Jian Wee Soh, Oscar Silva, Kai Ye and Yagnesh Patel (Imperial College London)
Photo: Clarissa Carbungco (Unsplash)
Overview of the deal
Acquirer: Novozymes A/S
Target: Chr. Hansen Holding A/S
Implied Equity Value: $11.4bn
Total Transaction Size: $12.3bn
Announced date: 12/12/2022
Target advisors: Goldman Sachs (Financial), Gorrissen Federspiel Advokatpartnerselskab and Baker & McKenzie LLP (Legal)
Acquirer advisors: Gordon Dyal & Co., Danske Bank A/S and Nordea Danmark (Financial), Plesner Advokatpartnerselskab, Linklaters and Davis Polk & Wardwell (Legal)
Denmark based biotech giant Novozymes A/S, known for its expertise in developing enzymes for industrial use, has agreed to merge with Chr. Hansen Holding A/S in an all-stock deal valued at $12.3 billion. Chr. Hansen Holding A/S is a Denmark based holding company that has subsidiaries engaged in producing cultures, enzymes, probiotics and natural colours for the food industry. In the proposed merger, Novozymes will be the surviving company and will keep its name while Chr. Hansen will be dissolved (without liquidation) and transfer all its activities (including assets and liabilities) to Novozymes.
In terms of deal structure, Novozymes will issue 157,657,618 new Class B shares to acquire 102,869,384 shares of Chr. Hansen (78.02% stake) at an exchange ratio of 1.5326, representing an implied premium of 49% to Chr. Hansen’s share price on the day prior to the deal’s announcement. Concurrently, Novozymes will acquire 28,983,112 shares (21.98% stake) in Chr. Hansen from its holding company Novo Holdings A/S through a share exchange at an exchange ratio of 1.0227. Post transaction, of the combined group’s shared capital, Novozymes free float shareholders will hold 44%, Chr. Hansen free float shareholders will hold 34% and Novo Holdings will hold 22%.
The combined group is estimated to have annual revenues of €3.5 billion, with expected annual revenue synergies of €200 million within four years. As the services offered by both companies are highly complementary, combination of both companies will allow them to leverage on their expertise in microbials and enzyme development to create the leading global BioSolutions partner focusing on enabling healthier lives through the development of biological solutions in the food industry. The deal is expected to close by the last quarter of 2023 or first quarter of 2024.
“We are excited by the immense, additional potential we see in joining Novozymes and Chr. Hansen to create a true global biosolutions leader underpinned by our shared Danish heritage.” - Jørgen Buhl Rasmussen, Chairman (Novozymes)
Company Details (Acquirer - Novozymes)
Novozymes is the world leader in industrial enzymes. However, in the last few years, the company has also ventured into micro-organisms, with a focus on the agricultural sector. Novozymes serves five significant industry segments, including household care, food and beverages, bioenergy, agriculture and feed, as well as technical and pharma. Its biological solutions help customers increase efficiency and performance while reducing energy consumption and waste. Novozymes is headquartered in Denmark.
Founded in 1921, headquartered in Copenhagen, Denmark
CEO: Ester Baiget
Number of employees: 6,781
Market Cap: $13.4bn (as of 23/03/2023)
LTM Revenue: $2.5bn
LTM EBITDA: $822mn
LTM EV/Revenue: 5.7x
LTM EV/EBITDA: 17.4x
Company Details (Target - Chr. Hansen)
Chr. Hansen is a Danish-based bioscience company specialising in microbial products for the food, agriculture, nutritional, and pharmaceutical industries. Its main products are probiotics used for various foods, beverages, pharmaceuticals, and agricultural products. Two-thirds of the firm’s revenues come from its food cultures and enzymes division.
Founded in 1874, headquartered in Hørsholm, Denmark
CEO: Mauricio Graber
Number of employees: 3,834
Market Cap: $9.2bn (as of 23/03/2023)
LTM Revenue: $1.3bn
LTM EBITDA: $431.9mn
LTM EV/Revenue: 7.9x
LTM EV/EBITDA: 23.6x
Projections and Assumptions
Novozymes and Chr. Hansen's merger will create a company with annual revenues of ~$3.5 billion. The deal will see Chr. Hansen shareholders receive 1.5326 new B-shares in Novozymes for each Chr. Hansen share, valuing each Chr. Hansen share at $93.53. Novo Holdings, the largest shareholder in both companies, will support the merger and exchange its 22% stake in Chr. Hansen at an exchange ratio of 1.0227 new B-shares in Novozymes.
The companies expect annual revenue synergies of €200 million within four years of completing the deal. The group is also expected to achieve an EBIT margin of 29% by 2025, excluding integration costs and PPA (Purchase Price Allocation: an acquisition accounting process of assigning a fair value to all of the acquired assets and liabilities assumed by the target company) amortisation. The merger is expected to be mid-single digit percentage accretive in the third year after completion, and no additional debt is expected to be issued.
The merger is likely to not only widen the toolkit for each company, but could bring about consolidation in the market, as well as potential changes in leadership and organisational structure of the new company. The deal will bring together Novozymes’ expertise in enzymes and Chr. Hansen’s capabilities in natural microbials, providing a one-stop-shop for natural chemical processes to enhance the taste, performance, nutritional benefits, and shelf life of a variety of offerings.
Steady growth in the bioproduct solutions space means the merger has ample opportunity to grow within its core competencies. The global probiotics market, consisting of food, beverages, dietary supplements, and animal feed products, is expected to have a CAGR of 7% through 2030. The overall enzymes market is projected to have a CAGR of 6% through 2031. These estimates ground the merger’s expected organic revenue growth CAGR of 6-8% until 2025.
Additionally, prior partnerships and support from the firms’ largest shareholder should mitigate integration risks and increase realised synergies. The two firms had a strategic alliance over two decades ago that focused on developing enzymes used in dairy products. A future merger would use the insights and drawbacks from this prior partnership and decrease integration pains through 2024.
A third benefit comes from Novo Holdings, which owns 25.5% of Novozymes and 22% of Chr. Hansen - exerting significant control over both firms. Its strong belief in the commercial, strategic, and long-term financial merits of this transaction, means it is willing to accept a less favourable exchange ratio for its shares in Chr. Hansen than what is offered to other shareholders. Novo Holdings’ oversight, such as nominating two members of the new board, should help the new firm achieve its strategic goal of providing healthy biological solutions to its clients.
Risks and Uncertainties
While the merger of Novozymes and Chr. Hansen presents a promising opportunity for growth, there are still risks and uncertainties that could potentially impact the success of the deal. One such risk is the potential for market consolidation. The merger will create a company with a significant market presence in the bioproduct solutions space, which could potentially limit competition and lead to antitrust concerns. Additionally, the merger could result in changes to the leadership and organisational structure of the new company, which could potentially impact the ability to execute on strategic goals.
There is also uncertainty around the future growth prospects of the bioproduct solutions market. While there are promising growth projections for the probiotics and enzymes markets, there are no guarantees that these projections will materialise. Factors such as changing consumer preferences, regulatory changes, and economic conditions could all impact the demand for bioproduct solutions.
Lastly, there is always the risk that the expected synergies and financial benefits of the merger may not be fully realised. The companies are projecting significant revenue synergies and EBIT margin improvements, but there is always the potential for unexpected challenges or issues that could impact these projections.
Overall, while the merger presents a promising opportunity for growth, there are still risks and uncertainties that must be carefully managed to ensure the success of the deal.
“As long-term shareholders in both Novozymes and Chr. Hansen, we are in full support of the plans to combine the two companies.” - Kasim Kutay, CEO (Novo Holdings)