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Acquisitions and Equity Method Investments

9 Months Ended

Sep. 30, 2021

Acquisitions and Equity Method Investments

3. Acquisitions and Equity Method Investments

Acquisitions

On April 1, 2021, the Company acquired KaTech, a privately-held company headquartered in Germany. KaTech provides advanced texture and stabilization solutions to the food and beverage industry. To complete the closing, the Company made a total cash payment of $40 million, net of $2 million of cash acquired, which it funded from cash on hand. The results of KaTech are reported on a one-month lag within the Company’s Condensed Consolidated Financial Statements during the integration process of the companies. KaTech’s operational results are recorded in the Company’s Europe, Middle East and Africa (“EMEA”) reportable business segment.

On November 3, 2020, the Company acquired the remaining 80% of the outstanding shares of Verdient Foods, Inc. (“Verdient”), as well as the leased land and buildings not owned by Verdient. To complete the closing, the Company made a total cash payment of CAD $33 million (USD $26 million), which it funded from cash on hand. The Company had previously entered into an equity method investment with Verdient by acquiring 20% of its outstanding shares. Verdient is a Canada-based producer of pulse-based protein concentrates and flours from peas, lentils, and fava beans for human food applications. The results of the acquired operation are included in the Company’s consolidated results from the acquisition date within the North America reportable business segment.

The acquisitions of KaTech and Verdient added a total of $36 million of goodwill and $35 million of tangible assets as of their respective acquisition dates. The purchase accounting for the assets acquired and liabilities assumed for KaTech and Verdient is preliminarily recorded based on available information and incorporating management’s best estimates.

On July 1, 2020, the Company completed its acquisition of a controlling interest in PureCircle Limited (“PureCircle”). PureCircle is one of the leading producers and innovators of plant-based stevia sweeteners for the global food and beverage industries. To complete the closing, the Company made a total cash payment of $208 million, net of $14 million of cash acquired, which it funded from cash on hand. After the closing, the Company owns 75% of PureCircle, with the remaining 25% owned by former PureCircle shareholders. PureCircle is consolidated by Ingredion for financial reporting purposes, with a corresponding redeemable non-controlling interest of $74 million recorded for the portion not owned by the Company at the time of acquisition. The results of PureCircle are reported on a one-month lag within the Company’s Condensed Consolidated Financial Statements during the integration process of the companies. The results of the acquired operations are included in the Company’s consolidated results from the acquisition date within the Asia-Pacific reportable business segment.

A preliminary allocation of the purchase price to the assets acquired and liabilities assumed was made based on available information and incorporating management’s best estimates. The assets acquired and liabilities assumed in the transaction for each acquisition were generally recorded at their estimated acquisition date fair values, while transaction costs associated with the acquisitions were expensed as incurred.

The purchase accounting for the assets acquired and liabilities assumed for PureCircle was completed during the three months ended September 30, 2021.

Goodwill represents the amount by which the purchase price exceeds the estimated fair value of the net assets acquired. The goodwill results from synergies and other operational benefits expected to be derived from the acquisition. The goodwill related to PureCircle is not tax-deductible due to the structure of the acquisition.

The following table summarizes the purchase price allocations for the PureCircle acquisition as of September 30, 2021:


(in millions)		PureCircle
Working capital (excluding cash)	$	68
Property, plant and equipment		91
Other, net		(33)
Identifiable intangible assets		68
Goodwill		88
Total fair value, net of cash		282
Less: Non-redeemable non-controlling interests		74
Total purchase price, net of cash	$	208

The identifiable intangible assets for the acquisition of a controlling interest in PureCircle include customer relationships, tradenames, and proprietary technology. The fair values of these intangible assets were determined to be Level 3 under the fair value hierarchy. Level 3 inputs are unobservable inputs for an asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for fair value estimates to be made in situations in which there is little, if any, market activity for an asset or liability at the measurement date. For more information on the fair value hierarchy, see Note 6 of the Notes to the Condensed Consolidated Financial Statements.

The following table presents the fair values, valuation techniques, and estimated remaining useful life at the acquisition date for these Level 3 measurements (dollars in millions):


				Estimated
Intangible Asset	Fair Value		Valuation Technique	Useful Life
Proprietary technology	$	32	Relief-from-royalty method	12 years
Trade names		18	Relief-from-royalty method	15 years
Customer relationships		18	Multi-period excess earnings method	12 years

The fair values of proprietary technology, trade names, and customer relationships were determined through the valuation techniques described above using various judgmental assumptions such as discount rates, royalty rates, and customer attrition rates, as applicable. The fair values of property, plant and equipment associated with the acquisitions were determined to be Level 3 under the fair value hierarchy. Property, plant and equipment values were estimated using either the cost or market approach.

Pro-forma results of operation for any of the foregoing acquisitions have not been presented as the effect of each acquisition individually and in the aggregate with other acquisitions would not be material to the Company’s results of operations for any periods presented.

The Company incurred an insignificant amount and $5 million of pre-tax acquisition and integration costs for the three and nine months ended September 30, 2021, respectively. The Company incurred $5 million and $8 million of pre-tax acquisition and integration costs for the three and nine months ended September 30, 2020, respectively.

Equity Method Investments

On June 1, 2021, the Company and certain of its subsidiaries entered into an agreement with Amyris, Inc. (“Amyris”) for certain exclusive commercialization rights to Amyris’ rebaudioside M by fermentation (“Reb M by fermentation”) product; the exclusive licensing of Amyris’ Reb M by fermentation manufacturing technology; and a 31% ownership stake in a Reb M by fermentation joint venture. In exchange for its ownership interest in the Amyris joint venture, Ingredion contributed $28 million of total consideration including $10 million of cash and non-exclusive intellectual property licenses and other consideration valued at $18 million. The transaction resulted in $8 million of Other (income) expense, net recorded in the Condensed Consolidated Statements of Income during the nine months ended September 30, 2021. The $8 million gain includes $18 million of other income related to non-exclusive intellectual property licenses and other consideration contributed by Ingredion for the Company’s stake in the Amyris joint venture, offset by a $10 million cash payment made by a subsidiary of Ingredion to Amyris for the exclusive right to the Reb M by fermentation manufacturing technology license from Amyris.

On February 12, 2021, the Company signed an agreement with an affiliate of Grupo Arcor, an Argentine food company, to establish Ingrear Holding S.A. (the “Arcor joint venture”), a joint venture to combine and operate five manufacturing facilities in Argentina to sell value-added ingredients to customers in the food, beverage, pharmaceutical and other industries in Argentina, Chile and Uruguay. On August 2, 2021, the Company and Grupo Arcor completed all closing conditions to finalize the transaction and formally establish the Arcor joint venture. The Arcor joint venture is managed by a jointly appointed team of executives.

The Company obtained an equity method investment in the Arcor joint venture as a result of the transaction. In exchange for transferring certain assets and liabilities from its Argentina, Chile and Uruguay operations for a total fair value of $71 million, the Company received 49 percent of the outstanding shares of the Arcor joint venture valued at $64 million, and $7 million of consideration, including cash, from Grupo Arcor as of August 2, 2021. The transaction resulted in an impairment more fully described in Note 5 of the Notes to the Condensed Consolidated Financial Statements.

The Company incurred $3 million of pre-tax direct transaction costs to acquire the Arcor joint venture investment during the three months ended September 30, 2021, and $4 million of pre-tax gains, consisting of the $8 million gain related to the Amyris joint venture, partially offset by $4 million of direct transaction costs to acquire the Arcor joint venture and Amyris investments during the nine months ended September 30, 2021.