The Israeli company has acquired 70 per cent of the shares in savoury ingredients provider GewurzMuhle Nesse.
Shares in the Germany-based firm were bought for €18.41 million plus a future success fee payment based on continued improvement in Nesse's future EBIT.
"We believe that this strategic acquisition is another significant milestone in implementing our rapid growth strategy," said Ori Yehudai, president of the Frutarom Group.
"The acquisition will significantly strengthen Frutarom's technological capabilities and savoury offering, as well as our market position in both West and East Europe as a leading flavours supplier, while contributing to our sales turnover and profit."
Nesse has certainly achieved strong growth in the past few years. Sales have grown from €14.4 million in 2001 to €21.4 million in 2004 and Frutarom expects sales to continue growing at a double-digit rate in 2005.
"There are strong synergies between the newly acquired savoury activity and our existing activities in the more than 100 countries in which Frutarom operates, especially in Western and Eastern Europe," said Yehudai.
"The acquisition also includes activities in additional countries where Frutarom has been less active, such as Poland, the Czech Republic, Latvia, Yugoslavia, among others. We feel confident that this acquisition will support our fast, above industry-average growth, and bring significant value to our customers, employees and shareholders."
In addition, the savoury flavours market - non-sweet flavours - is growing fast at an annual rate of 4 per cent to 6 per cent in developed countries and even more in emerging markets where Nesse is active, due to changes in social habits and consumer preferences.
This is not the first time that the ambitious Israeli firm has looked at opportunities in emerging markets. The company opened a sales and marketing office in Indonesia last year to capitalise on Asian market growth, emphasising once again Frutarom's aim of becoming one of the world's top ten flavour players.
Frutarom, whose sales for the first nine months of 2005 grew 36.7 per cent compared with the same period in 2004, says that the recent acquisition will be financed from its own resources. The company has a call option to purchase and the sellers have a put option to sell, for two years as of the end of 2007, the remaining 30 per cent.
The Israeli company said that the exercise price would be based on 30 per cent of the average annual EBIT achieved by Nesse during the two years preceding the exercise of the option, multiplied by 6.5.
The Krause family - Nesse's owners - will continue to manage Nesse and will also join Frutarom's global Flavours Division's management.