EQT in German fragrance consolidation

The Nordic private equity firm is buying Bayer’s flavours manufacturing business in a E1.7bn deal to merge it with Dragoco, a competitor.

Bayer AG is selling its flavours and fragrances manufacturing unit, Haarmann & Reimer, to EQT Northern Europe Private Equity Funds in a deal that will net the German chemicals and pharmaceuticals group E1.66bn. An agreement was signed early this morning. 

The Nordic private equity house, which operates in Germany from its Munich office, is also acquiring shares in Dragoco, a competitor of Haarmann & Reimer, to merge the two Holzminden-based companies. The merger is subject to regulatory approval.

Financial details of the transaction have not been disclosed. EQT will hold a 76 per cent controlling stake in the new company, which will have E1.245bn in sales and 5,800 employees. Horst-Otto Gerberding, Dragoco’s CEO who will run the company, will bring a 58 per cent personal shareholding in Dragoco into the deal and end up holding a 22 per cent interest in the new business. NordLB, which currently owns four per cent of Dragoco, will own two per cent of the merged entity. Other shareholders in Dragoco, including Equita, a private equity investor controlled by the Quandt family, have agreed to sell their shares to EQT.

Hans Moock, a partner at EQT involved in the deal, said the opportunity to buy a large corporate orphan and merge it with a German Mittelstand company was rare and very pleasing for the firm. It is EQT's largest investment to date, and will lead to EQT Northern Europe, its latest fund which closed last year on E2bn, being 60 per cent invested.

EQT started to look at fragrance in Germany in 2001 after Boston Consulting Group had advised the house that the sector was ripe for consolidation. When the Haarmann & Reimer auction began in January this year, handled by Deutsche Bank, EQT decided it had to join forces with an industry player to be able to compete. In tandem with Gerberding, EQT beat off several rivals including CVC Capital Partners, BC Partners and Cinven. Potential trade buyers to miss out on the Bayer subsidiary were Firmenich, which was working with Allianz Capital Partners, and Givaudan.  

Udo Philipp, another partner at EQT in Munich who also worked on the deal, said in a statement that Haarmann & Reimer and Dragoco had been growing at a faster rate than their industry sector over the past years. EQT estimates that the combined group will have an 11 per cent share in the E11bn global fragrances and flavours market.  

If successful, the planned merger would mark a significant milestone in EQT’s development as an equity house operating outside its Nordic home market. In December 2001, the group made its first German investment, acquiring Leybold Optics from Zurich-based Unaxis Group for E166m.

EQT, which is sponsored by Swedish holding Investor AB, manages a group of private equity funds with equity commitments exceeding E3bn. The firm is currently working on plans to build a European mezzanine business to operate alongside its private equity franchise.