Strange Bedfellows?

LycoRed’s acquisition of Buckton Scott Nutrition may look odd at first, but it actually makes a lot of strategic sense.

ByAdam Ismail

If you were the CEO of a company like LycoRed, the Israeli-based pioneer of the lycopene industry, and you wanted to grow by acquisition, who would you buy? You might say another ingredient company with a small portfolio of products, or maybe a company that would give you more R&D or applications services, but you would probably never say a distributor that sells nearly 50 different ingredients, none of which are yours. So why then did LycoRed acquire Buckton Scott Nutrition?

Strategy

LycoRed has made a subtle shift in its strategy in recent months. It was formed by its parent company, Makhteshim Agan Industries, to basically commercialize various nutrients in tomatoes. LycoRed has seen a lot of success with its lycopene product, and it continues to make progress in the market. This summer it expanded its footprint in Europe by getting the U.K.’s Advisory Committee on Novel Foods and Processes to allow for the use of lycopene in foods.

LycoRed has now decided to expand into other carotenoids, but it doesn’t have a large sales force. Most of its product is sold through distributors, which makes sense for a small single-ingredient company. If it is truly going to enter into the carotenoid space in a big way, however, it may be able to spread the cost of a sales force over multiple products. Acquiring a distributor, therefore, seems like a smart move because you can use its established accounts and sales force as an outlet for new products. It also has the additional benefit of buying LycoRed time. While the company is developing new carote-noids, it can cover the cost of its new sales force with the sales of other companies’ ingredients. It is not the most ideal arrangement, but it serves the purpose.

The other key tenet of the LycoRed strategy is globalization. The company has rapidly expanded both its manufacturing and sales internationally. Buckton Scott actually complements that perfectly, having distributed nutritional ingredients in both Europe and the U.S., as well as sourcing them globally.

Synergies

Of course in every deal people look for the oh-so-important synergies. A majority of the time synergies never pan out, so people shouldn’t count on synergies to make the deal look attractive necessarily. In this case, the synergies may not be substantial, but there are a few.

Buckton Scott is the exclusive distributor of Biodar’s vegetarian beta-carotene product in the U.S. Biodar happens to bea subsidiary of LycoRed, which will soon be rebranded under the LycoRed name. However, because Biodar pays Buckton Scott a distribution fee, that money now will stay within the company. So that is a clear synergy, but it is unclear to what extent. Biodar said it exported $2.5 million of the company products, which means this acquisition could save a couple hundred thousand dollars per year.

A second clear synergy is swapping out other companies’ products for those of LycoRed, where applicable. Buckton Scott already distributes lycopene in the U.S., and while LycoRed is tied to the H. Reismann division of Pharmachem in a distribution deal, there is the potential for synergy in the future. There is also an opportunity in the future carotenoids LycoRed plans to launch. Buckton Scott already distributes a number of carotenoids, which could be swapped out for new LycoRed products. This can help “de-risk” new product launches.

Not So Strange After All

So while at first glance the deal looked kind of odd, because you probably could not find two companies more different in the space, in actuality there are a lot of points to the deal that make strategic sense. LycoRed will immediately gain something from the deal, and as soon as its new products start coming in it will have easy access to an outlet.NW