The merged firm will target the €30bn global value-added bakery market that in Europe alone is enjoying an attractive growth rate of around 4.5 per cent per year.
"We believe Aryzta will be the global leader in value added baked goods," Owen Killian, chief executive of IAWS, recently said in a conference call.
The merger, announced last month, marks the culmination of a five year partnership kicked-off in 2003 when IAWS purchased a 22 per cent stake, later boosted to 32 per cent, in the Swiss specialist bakery and convenience company.
And the link-up will seek to leverage the geographical reach, intellectual properties and 'substantial footprint of distribution' of both companies.
Under terms of the deal, in addition to its current 32 per cent stake, IAWS has agreed to buy a further 32 per cent in Hiestand from private equity company Lion Capital for €30m in cash and 12.7 million new shares.
Hiestand and IAWS have a market capitalisation of €680 million and €2 billion respectively.
The merger is still subject to shareholder approval, due to occur in August 2008. If cleared, Aryzta - that "preserves the cash and maintains the balance sheet" for both firms – will be listed in Dublin and Zurich.
Aryzta will have 200,000 customers and a geographical reach creating "access to 750 million consumers", said Owen Killian.
According to Killian, who will become CEO of Aryzta, the merged firm will tap into the value-added bakery market worth about €14bn in Europe, €9bn in the US, and on strong growth of 7 per cent per annum, about €5bn in Asia Pacific.
In terms of geographic coverage, IAWS operates in North America, the UK, Ireland and France while Hiestand's main operations are in Switzerland, Germany, Austria, Poland, Malaysia, Japan and Australia.
Consolidation continues to mark the landscape for the food sector. Not just about buying-in knowledge, consolidation is now a necessary strategy to compete across the board in a challenging market environment.
Indeed, in parallel to the gain in critical mass of the heavy-weight retailers and food makers, firms in the supply chain have been feeling, for several years, the impact of price pressures.
Consolidation, although often a costly procedure, represents a solution to beat such pressures through economies of scale and creating opportunities to trim margins.
"Consolidation in the food industry...may reduce the margins forcing companies to acquire economies of scope, not only in production but also in R&D, as investment in R&D increases by the day," says Frost & Sullivan in a recent report.
Indeed, recent figures from researchers Mergermarket show merger and acquisition activity in the European food sector topped €24bn in 2007.