particularly around product labelling , as consumer product and food safety issues come to the fore . At the same time , consolidation in the FF & I sector is being driven by large groups seeking to enhance their portfolios of products . Whether they are manufacturers or distributors , this strategy provides them with considerable cross-selling opportunities into their customer bases . Geographical expansion is also playing an important part in many acquisition strategies . Whilst Europe and North America are the largest markets , Asia is now becoming an increasingly important destination for many global players .
Wider drivers
Meanwhile , mature markets are seeing more demand for enhanced and improved FF & I , often based on natural products . New opportunities have developed around aromatherapy , dietary supplements , nutraceuticals and pharmaceutical products for health and wellness applications . These developments will have a dramatic effect on the demand for natural-based ingredients in the food and personal care sectors . The fragrance market is expanding considerably on the back of increasing demand for natural products driven by younger generations , which are perceived to be healthier , safer and more therapeutic . Such developments can be positive for manufacturers and distributors as these products typically come with a ‘ green premium ’. Equally , there is greater acceptance of synthetic fragrances in detergents , perfumes , soaps and toiletries as these products tend to emit stronger fragrances , last longer and are less expensive compared to natural products , providing manufacturers with greater product creativity . An additional benefit of synthetic fragrances is that they mitigate risk for manufacturers of the fluctuating supply of essential and natural oils . The market is also experiencing strong growth on the back of increasing consumer demand for more diversified and exotic product offerings , as well as more functional materials , which provide certain end products with differentiated and enhanced characteristics in food processing . Linked to this is increasing interest in halal , kosher , ISO and organic certified products , with all of these dynamics inevitably having an impact on the entire supply chain for flavours and food ingredients .
M & A activity
Large global groups in the FF & I sector are looking to take advantage of the strong fundamentals in the industry in order to make acquisitions that bring economies of scale , provide them with international expansion opportunities , or which reduce their internal costs . These companies are also keen to differentiate their own product offerings in order to compete more effectively with their peers . Equally , some large groups are looking to make acquisitions in order to mitigate the effects of their own lower rates of organic growth . Ongoing corporate appetite for bolt-on acquisitions is also driven by the fact that there are strong margin enhancement opportunities in the sector , while acquisitive groups with strong balance sheets can make multiple acquisitions in order to satisfy their demand . The end result is that there is increasing competition for any acquisition targets that demonstrate strong innovation and access to growth markets , which in turn keeps valuations of businesses high . The fragmented nature of the sector means that large groups have considerable opportunities to make acquisitions , although the modest rate at which targets become available means that it is a sellers ’ market . This allows vendors to be much more selective with regard to which potential buyers they interact with . The scarcity of high-quality acquisition targets means that potential buyers can no longer benefit from finding uninformed vendors who ‣
37