Archer Daniels Midland Company (ADM) is set to acquire Florida Chemical Company (FCC), a division of Flotek Industries specializing in citrus-based flavors and fragrances in a deal valued at approximately US$175 million. The transaction, which requires regulatory approval, is expected to close in the first quarter of 2019 and will strengthen ADM’s position in the fast-growing citrus category.

In connection with the sale of FCC, Flotek and ADM have entered into long-term reciprocal supply agreements. The first will secure Flotek's long-term supply of d-limonene. Additionally, Flotek will manufacture differentiated chemistries for Florida Chemical's industrial customers. The companies will explore opportunities to jointly develop next-generation chemistry technologies for the oil and gas and agricultural industries.

“ADM is already a leader in natural flavors for food and beverages, offering a wide variety of high-value products and solutions in areas such as vanilla and mint. This acquisition will place us in a leadership position for citrus flavors as well,” comments Vince Macciocchi, President of ADM’s Nutrition business unit. “Citrus is one of the fastest-growing flavor categories, and the single most important taste profile for beverages and no one in North America does citrus better than Florida Chemical Company.”

Founded in 1942, FCC has provided customers with premium citrus ingredients for more than three-quarters of a century. Based in Winter Haven, Florida, the company produces a wide range of high-value citrus flavor ingredients, specialty terpenes and formulated products primarily for the flavor, fragrance and consumer products markets. The company’s innovative, high-quality and on-trend products tap into consumer preferences for natural, clean label and reduced sugar foods and beverages. FCC products include:

• Individual citrus flavor materials and essential oils, including customized flavor blends;

• Flavor enhancers for grapefruit and other citrus; and;

• Citrus flavor modifiers specifically targeted to improve the quality and taste of food and beverages sweetened with natural or artificial sweeteners.

The move further cements ADM’s evolution towards more value-added ingredients beyond the company’s traditional commodity base. “With the acquisition of WILD in 2014, ADM began the journey to becoming the world’s leading nutrition company,” Macciocchi continues. “Starting with the foundation of a leading global flavor company and our specialty ingredients portfolio, we’ve vastly expanded our capabilities with additions like the savory flavors of Eatem Foods, the plant proteins from Harvest Innovations, probiotics from Biopolis and Protexin, and Rodelle’s premium vanilla ingredients. The result is great for our customers and our shareholders: No other company in the world can match the expertise, innovation, products and solutions of ADM – and we’re still growing.”

“ADM has long been an admired industry innovator whose global nutrition portfolio capabilities are second-to-none. Florida Chemical’s citrus expertise, together with our combined leadership in research and development, will allow us to strategically accelerate and expand our diverse offering to a wide and growing customer base. Additionally, I am pleased that we will continue our strong relationship with Flotek through both a long-term supply agreement and through the joint pursuit of next-generation chemistry technologies for the energy and agriculture industries,” says Josh Snively, President of Florida Chemical and Flotek’s Executive Vice President of Operations.

When complete, FCC’s approximately 75 employees will transfer to ADM, according to the company announcement.

John Chisholm, Flotek’s Chairman, President and Chief Executive Officer also comments: “We believe the benefits of this transaction are extremely compelling on multiple fronts and in the best interest of our stakeholders. This transaction unlocks significant value for our stakeholders while maintaining our access to key raw materials for our Energy Chemistry Technologies (ECT) business.”

“The transaction also enhances our flexibility to evaluate and pursue the long-term strategy for our core ECT business. Additionally, we are very excited about our long-term relationship with ADM to develop unique opportunities to more fully leverage their vast, high-performing portfolio of products to better serve the oil and gas market for many years to come. This transaction has created a synergistic relationship that brings strategic benefits to each company and our stakeholders.”

“ADM is a world-class leader in transforming crops into agricultural and food products. Recognized for its industry-leading capabilities and assets, Florida Chemical will be a significant strategic addition to ADM as they further expand their industry-leading flavor and fragrance offerings. We thank the Florida Chemical team for their invaluable contributions and look forward to continuing our strong relationship moving forward,” adds Chisholm.

In 2013, Flotek acquired Florida Chemical to vertically integrate its supply of citrus oils, a key raw material in its patented Complex nano-Fluid (CnF) suite of technologies. Since the original acquisition, the Company's Energy Chemistry Technologies segment has benefited from FCC, which enabled Flotek to better manage feedstock costs through the energy downturn from 2014 to 2016, pursue a new go-to-market strategy, and mitigate raw material price inflation caused by citrus greening disease and a significantly limited supply of global citrus oils.

Simultaneously, Florida Chemical has expanded its client base and product offerings, while enhancing its processing and distillation capabilities and leveraging its supply chain and highly respected employee base to penetrate food and beverage applications. This divestiture is the natural next step in Flotek's evolution, capturing the value of FCC while securing the supply of feedstock required to create the company's patented chemistries.

Following the closing of the transaction, Flotek will focus its efforts on providing its global clients with best-in-class solutions designed to maximize the performance of their oil and gas wells, while simultaneously lowering well costs and fluid complexity. Flotek intends to use the net proceeds to pay off its credit facility balance of approximately US$50 million.

In addition, the company is currently considering investing US$20 million to US$30 million in previously identified organic growth capital projects and will carefully review other future potential uses of the remaining funds.

Flotek intends to establish a Strategic Capital Committee to evaluate and make recommendations to the Board regarding the manner in which the company will deploy the remaining net proceeds from the sale of FCC. This includes the potential for additional investments in its business, returning capital to shareholders and other potential alternatives.

Chisholm concludes: “I look forward to a thorough review by our Strategic Capital Committee concerning the best use of the remaining net proceeds from the transaction and updating shareholders as to the results of that process. In addition, we look forward to continuing to benefit from Florida Chemical's citrus products through our long-term supply agreement with ADM. Finally, we are excited to partner with ADM as we seek new opportunities to expand our offerings to the oil and gas industry.”