Ocean Nutrition acquisition makes DSM world leader in fish oil omega-3s

In another major natural acquisition, Royal DSM announced a deal today to buy Ocean Nutrition Canada, the world’s largest supplier of omega-3s from fish oil. The deal makes DSM, already the biggest supplier of algal-source DHA after its acquisition of Martek, the largest player worldwide in the omega-3s market.

DSM agreed to pay $532 million for Ocean Nutrition, which is based in Halifax, Nova Scotia. Founded in 1997, Ocean Nutrition has grown to the point where 21 million servings of its MEG-3 product line are consumed daily worldwide in supplements, foods and beverages. ONC’s sales in 2012 are expected to post about $186 million.

The acquisition provides a lot of what analysts love to call “synergies.” DSM has now 51 formulation and R&D centers worldwide, and OCN’s formulation and delivery platform expertise will fit right in, according to DSM officials. And DSM has worldwide sales contacts that will benefit ONC’s products.

“It opens up areas [for Ocean Nutrition] where DSM has a stronghold like South American and South Asia,” said Ian Newton, principal of Markham, Ontario-based Ceres Consulting.

Acquisition risks

But those synergies come with risks. DSM has been on an acquisition binge in recent years, buying up innovative companies like Martek and ONC. The trick is to keep those ponies frisky after they move to the big barn.

“When a big guy acquires a little guy you bring a lot of bureaucracy. Ocean Nutrition was fairly nimble,” Newton said.

ONC has long been a formulation leader. Its MEG-3 encapsulation technology has allowed fish oil to pop up in a variety of platforms, from beverages to baked goods to other functional foods. ONC has even managed to put its MEG-3 ingredient into a cooking oil, entering the Chinese market in this way in a deal with Wilmar, a leading Asian brand of cooking oils.

In addition to its refining capability in Nova Scotia and its secure supply relationships in the Peruvian anchovy fishery—still the lion’s share of the world’s supply of omega-3s—ONC also has significant on-shore bulk fish oil capacity in Peru. This further strengthens the supply chain picture, as some anchovy fisheries have trended toward their own bulk oil processing to capture additional value.