Archer-Daniels Midland Boosts Nutrition Footprint
While we are skeptical of the revenue synergies the firm hopes to achieve with its purchase of Neovia and Protexin, we think the cost savings synergies are largely achievable.
The Neovia acquisition price reflects an enterprise value to EBITDA multiple of around 14 times before synergies, which is in line with comparable transactions based on PitchBook data. The Protexin acquisition price reflects a 16 times multiple before synergies, which is slightly above the comparable transactions multiple.
Of management’s proposed synergies totaling $50 million, $35 million would come from cost savings and the remaining $15 million from revenue synergies. While we are skeptical of the revenue synergies, we think the cost savings synergies are largely achievable. Given Archer-Daniels' existing transportation infrastructure, we think the company will be able to realize cost savings synergies through the reduction of distribution expenses as well as the the elimination of some dual back office functions that include research and development and SG&A. After accounting for $35 million of synergies, we think the company negotiated a fair price for both acquisitions. As such, we maintain our $46 per share fair value estimate and no-moat rating.
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