Good morning, and welcome to the Darling Ingredients Inc. conference call to discuss the acquisition of Gelnex. After the prepared remarks, there will be a question-and-answer period. Instructions to ask a question will be given at that time. Today's call is being recorded. I would now like to turn the call over to Ms. Suann Guthrie. Please go ahead.
Thank you for joining the Darling Ingredients special investor call to discuss the acquisition of Gelnex. Here with me today are Mr. Randall C. Stuewe, Chairman and Chief Executive Officer, and Mr. Brad Phillips, Chief Financial Officer. During this call, we will be making forward-looking statements which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results can materially differ because of factors discussed in today's press release and the comments made during this conference call and the risk factors section of our Form 10-K, Form 10-Q and other reported filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. Now I will hand the call to.
Thanks, Suann. Good morning, everybody in the U.S. and good afternoon to all our shareholders and colleagues and friends in Europe. We're broadcasting live from one of our latest acquisitions last spring in Antwerp, Belgium at Ecoson, one of our new green energy investments where we take a lot of 250,000-350,000 tons of plate waste, leftovers from grocery stores, delis, commissaries, and turn it into green electricity and organic biophosphate fertilizer. It's great to see the team here and see the facility that is now part of the Darling family. You know, today we wanted to get together and kinda remind everybody what we're doing and why we're doing it.
I think as we've been on the speaking network and both in Europe and the U.S. and South America, we've always talked about four pillars of growth. The pillars of growth were sustainable aviation fuel. We'll continue to keep you up to date as we evaluate those economics. Additional basic specialty ingredient to processing or the core rendering business. That would be Valley Proteins, that would be the FASA Group in Brazil. We talked about all kinds of different things but one of them that was very near and dear to us was the collagen business as an expansion mode for us as we look forward. Today we wanted to talk to you a little bit about a deal that we have been working on for some time.
I think we've been very open with people that if opportunities come through the space, that we will continue to look at them and take opportunities to grow when they can be done in a friendly, accretive manner. In this way, the Gelnex acquisition once again meets the three criteria near and dear to the success of our management team. That is we're buying a great business with a great management team. We're paying a fair price for it. Brad and I'll talk to you more about the capital structure that is going under it.
I know there'll be lots of questions there, but I think as you've seen or if you were connecting the dots, over the last three months, you would be able to then know that the delayed draw loans that were put out there were being put in place in case we were successful on this. Today, Darling entered into a definitive agreement, as we said, to acquire all the shares of Gelnex. I would refer to them as a top four leading global producer of collagen products. That's both gelatin and collagen peptides for approximately $1.2 billion, and that's U.S. dollars. The transaction is really the same as all of our deals. It's subject to customary regulatory approvals, and we are hopeful that we can get this done through the Brazilian authorities sometime during the first quarter of 2023.
It's headquartered in Brazil in Santa Catarina. It has five facilities in South America, but more importantly it has one in Paraguay. Once again, we're growing the Darling footprint to another country. It produces a little under half of what we do today, of 46,000 metric tons of collagen products, and it exports about the same as we do into 60 countries around the world. They have 1,200 wonderful employees that we welcome to the Darling family as we build the Rousselot brand to serve our global and worldwide customers. The brand we're talking about is Rousselot. We refer to Rousselot as a leading manufacturer of collagen and a worldwide supplier of hundreds of collagen products made from bovine, porcine and fish today. To remind you, we operate 11 facilities.
Three of them are in China today, four of them are in Europe, two in South America, plus the other five we just acquired, and then we have two in the U.S. today. We will move our number of facilities up from 11- 17 and we're also adding one in the U.S. There'll now be three in the U.S., there will be six in South America, Brazil, and there'll be one in Paraguay. We're expecting, as we would be sure to share with you, the reason we've done the deal is we have been incredibly bullish and optimistic on collagen peptides as a growth vehicle for the Darling platform. We believe and fundamentally we have studied it through different consulting groups and different trade associations.
We believe that the collagen peptides and their applications will nearly double if not exceed that in the next five years. We look at growing out, and I know everybody always likes to spend about 80% of our time, 90% of our time on Diamond Green Diesel and renewable diesel and sustainable aviation fuel. We happen to really believe in the food segment as another linkage that once again brings us closer to the slaughtered animal byproducts. As I tell people, today, around 15% of the slaughtered animal byproducts in the world goes through one of our factories. That's about one in every seven animals. We segment those between inspected and food grade, stuff that can't be fed to a human, but can be fed to an animal. That's our feed segment.
The third category would be converted into green energy, and that's our fuel segment. As we said, we expect that segment to grow maybe 50%, maybe a little more over the next couple years as we integrate in Gelnex into it. We've been given now open guidance in the segment for 2022, and that $220 million-$230 million EBITDA range. That's US dollars. Let's quickly talk about collagen and what it is, and then we'll kinda open it up to Q&A here in a minute. You know, collagen is the most abundant protein found in the human body. It plays a really interesting and increasing role in both health and nutrition, and consumers are continuing to seek benefits for their hair, nails, skin, joints, bones, muscles.
I think that's true with the aging demographic of the world. Collagen as a supplement has now been proven to be very effective in improving hair growth, nail quality, skin, joint, bone, and muscle behavior. You know, we've built a portfolio that started here over the last nine years, and it started with one little collagen conversion unit in Brazil. It's now grown to two or three in Brazil now, one in Ghent, Belgium, and one in Angoulême, France. We continue to see incredible demand for this product because of the breadth of applications that it can go into. It can go into powders, it can go into capsules, it can go into tablets, nutritional bars, drinks, dairy, confectionery. It can go into cosmetics. You're starting to see it.
You see it on TV advertised by Jennifer Aniston in the Vital Proteins brand. You're seeing it with Gatorade BOLT24 now. You're seeing it with, I believe, L'Oréal and some of the other cosmetic companies. You're seeing it in PediaSure. It's a product that has numerous applications, which I would say tend to be even broader than straight gelatin, which is an emulsifier and encapsulation agent. We see it as a way to once again grow the base of Darling around the world. We can grow our earnings, we can grow our customer participation around the world with a product that's once again good for the population. With that, I'd like to go ahead and turn it over to Q&A, and we'll do our best to answer what we can.
I would ask you to be respectful that we are in a regulatory filing period, so if we are shutting down a question or not answering it as deeply as you'd like to, it's because we're being advised until we get clearance to not do that. With that, let's go ahead, Sarah, and open it up, please.
Thank you. We will now begin the question and answer session. To ask your question, please press star then one on your telephone keypad. If you are using a computer, please press star one on your keyboard. To withdraw your question, please press star then two. At this time, I'm going to turn the call over to
Our first question comes from Derek.
Our first question comes from Derek with BofA. Please go ahead.
Hey, y'all. Congrats on your acquisition.
Thank you.
I wanted to start and ask if you could just share the earnings power of Gelnex's business today and what are the potential synergies you see with the business?
Yeah, no, I mean, number one, you know, it's being purchased at around a 10 multiple today. I think you could back into that with the 50% of the food segment growth earnings there. No real surprises there. We look at it as we looked at our system around the world, Derek. You know, we've added spray dryers and hydrolysis units and reactors where we can, and we've maxed out our capacity that we have available to produce the product today. You have multiple choices, if you will, in these factories. You can either produce gelatin or you can produce collagen through two different processes. The basic front-end extraction unit's the same.
We've maxed it out where we had access to the raw material that the world prefers, and that would be bovine grass-fed, you know, high gelatin. You know, at the end of the day, it will integrate nicely into our management structure that exists down in Brazil. It will give us additional extraction capacity to add, you know, additional hydrolysis and spray drying units where it makes sense as the market grows over time. It's really a transition in product mix. You know, as we said, it's immediately accretive, and we believe it'll even be more, you know, even a growth vehicle for the next, you know, five-plus years for us.
As my follow-up, I wanted to maybe ask if you could, for the benefit of investors, speak to the value of grass-fed bovine collagen versus grain-fed bovine collagen in the consumer markets and note if there's a noticeable margin difference between the two.
Yeah, it's you know clearly it deals back. I would say this is way above my pay grade in that space. As I've looked at it, you know, once again, it's the clean label, and you get the clean label organic versus the you know who knows what it was fed. It is clearly the growth category. The consumer has spoken, and they're willing to pay a premium for that product.
Great. Thanks for your time, and congrats on the transaction.
Thank you.
Our next question comes from Tom Palmer with J.P. Morgan. Please go ahead.
Hi. Good morning, and congrats on the third acquisition, third largest one of the year.
Yeah.
Wanted to ask, I guess on maybe to start off just on the bandwidth. It is the third largest one, I guess fourth, if you include the fuel one. How do you think about bandwidth both from a balance sheet and personnel standpoint? Might we expect a pause to pay down some debt and integrate these businesses, or are there still more active M&A opportunities in the pipeline?
Yeah, this is Randy, and I'll tag team this with Brad. Bandwidth, we're done. I know that can mean many things to people listening on the call right now, but from an internal resource standpoint, we're gonna focus on integrating. We're making great strides, you know, in integrating the Valley Proteins acquisition. You know, the FASA Group is a very well-run group in Brazil. Diamond Green Diesel Three is in process of commissioning here over the next two weeks. Bandwidth-wise, people-wise, we're done. We've got to spend some time putting in the control systems both from a SOX timing, from IT, from banking treasury, FX risk management, all those things that have to happen here.
You know, I think as Brad will comment on leverage ratios and how he's gonna pay for my buying binge again, you know, he'll sit there and make you comfortable. Brad?
Okay. Yeah. Hi. Hey, Tom. Brad. You know, we paid for Valley Proteins earlier in the year, now FASA back in August. After that, obviously we're not at our Q3 call yet, but ballpark somewhere in that 2.5x. You've had FX, of course, moving around too. Subsequent to that, depending on when Gelnex closes, right? We're looking at some time, hopefully earlier part of 2023. Depending on, you know, the base business, we've been saying the guidance, you know, around 1.6. Given that, we'll probably be a little over pro forma, a little over 3x. Then as Randy said, we're gonna, you know, pause and delever like we've always done before. We've said before, we wanna stay consistently down below 2.5x.
That leaves us more than a ton of availability. We have delayed draw term loan A's that were put in place. We did an upsize on our bond that freed up our revolving facility back several months ago. Leaves us with very adequate liquidity availability. Then we'll be looking to pay down debt in 2023, which will be supplemented, of course, by the Diamond Green Diesel startup and the JV being debt-free.
Okay, great. Thanks for all the detail. Maybe I can just quickly follow up on the funding. I think you've both in the prepared remarks and just now you referenced it, but I just wanna confirm. You've got the two delayed draw term loans, that's $800 million. You upsized the prior offering in mid-August by about $250, and then the balance, if there is any, would just be the revolver. Is that right?
Right. The balance in excess of the term loans would be all available cash/revolver.
Okay.
The only reason I mentioned the upsize on the bond, that freed up revolver availability. You'll see that clearly here in at Q3.
Understood. Thanks for the detail.
Okay.
Our next question comes from Ben Bienvenu with Stephens Inc. Please go ahead.
Hey, thanks so much for taking my question. I wanna ask first a question just following up on some details of the Gelnex business and then a second kinda higher level strategic question. The first is, you gave the facility breakdown, but if you think about the split of revenue of the business or even however you wanna look at it, how much of it is, you know, U.S.-based versus South America, if you can provide it?
Yeah. I mean, what I can tell you there is there's one facility in Portage, Indiana, the facility in Brazil. But I don't know that that's relevant because remember all of our hydrolyzed collagen peptides that are bovine in nature come out of Brazil today.
That was the backdrop or the strategic investment decision was where's the home of the most affordable and most available, you know, hide in the world? Fundamentally, as we've said, which is reflected in our FASA investment, we believe that Brazil and, with to a degree, let's say Paraguay, Uruguay, Argentina, are gonna feed the world. They have the land, they have grains, they have the water, they have the people. From a food security standpoint, we believe in significant protein in the form of chicken, pork, beef in that part of the world over the next decade. We wanted to be there. This is just another furtherance of that investment thesis.
Okay, great. My second question is just related to, sort of the composition of the capital you spent around M&A and how you think about kind of balancing the overall earnings contribution across all the different businesses in which you participate. Obviously, you know, the feed ingredients business is benefiting from higher fat and oils and grains, proteins, environment, which there are some clear structural demand drivers for. But when you think about balancing across all the different business segments, more cyclical earning streams versus more secularly growing earning streams, with more stable margins like this business, the collagen, you know, that the long-term growth profile of the business. How should we be thinking about where your head is in terms of the type of business that you wanna build over the long term?
Yeah, those are really great, I mean, deep think questions, and we do spend a lot of time thinking about it. You know, clearly the food segment, you know, as we've talked about the parts of the slaughterhouse inspected, et cetera, you know, we're able to provide a superior economic proposition to the slaughterhouses of the world with our access to value-added products that we can create. When we look back at the food segment, that came 100% from the Vion acquisition back in 2014-15. If you go back and look at it for the last seven years, I think we've grown it somewhere between 13%-15% every year. It's got nice margins.
It's attracting capital, and it has the thing that's so important to us, and that is it has the lack of cyclicality, seasonality, whatever you wanna call it, of commodities here. Now I 100%, you know, agree with you. We have structurally figured out a way now to change the world dynamic of fats in the form of animal fats, used cooking oil and distillers corn oil. You know, at the end of the day, value-adding proteins was the next thing we wanted to do. Once again, you see us doing that here.
You know, like I said, we're coming to you live from Antwerp, Belgium, in one of the coolest facilities I've ever been in, where we're segregating plate waste and grocery store waste, and we're making biogas, and we're making biophosphate fertilizer, and we're recapturing nitrogen, you know. Both of them, what do they have in common? They're both part of the food supply chain, but they're also both very much annuitized and very predictable earning power businesses. We all know that feed segment has had some volatility in it over the years. Anything we can do to balance the portfolio that meets our return standards and growth opportunities or beliefs is something we will continue to do.
Okay. Thank you, Randy.
Our next question comes from Ken Zaslow with BMO Capital Markets. Please go ahead.
Hey, good afternoon or good morning, wherever you guys are. Couple of questions I had. One is, when you think about the 330-350 base, once you've combined everything together, what will the growth rate be from there? How do you think about that? Just what's the longer term view on how you're gonna grow off that 330-350 base?
I would use right now, Ken, 5%-7%. I mean, clearly, we've seen the collagen product line grow rapidly the last couple years as the. It's really a U.S. dominated demand point at this time. You know, it—we were bringing on all the three spray dryers in Brazil when COVID hit. That really, you know, this is somewhat B2B, but it's B2C also. There was some really supply chain challenges. There was some consumer not getting to the store challenges that happened here. Only now are the products really coming out with big brand support behind them, and only now are they being launched in Europe.
You know, as we look forward, there's an immediate, you know, success story here once we're integrated. As we go forward, it'll be converting capacity to make the products that we think will trade in the world. You know, in Angoulême plants today, we make, you know, fish collagen, and that's great for skin beauty. In Ghent, Belgium, we make porcine. At the end of the day, you know, this is an expansion into not only gelatin, but also gives us an expansion in the collagen business for the hide or the bovine and grass-fed material. You know, I think long-winded answer, you know, somewhere 5%-7%, 2-3 years out.
You know, these products you will saturate at some point, but they—I think it's still a ways out, and the applications are only beginning to become, you know, be unveiled out there. We've not talked about, you know, some other consumer products. You know, you know, we're talking health, nutrition, and wellness here, and yet, at the end of the day, you're starting to see coffee creamers. Salad dressings. There's a whole bunch of application areas. I mean, I think it's safe to say that the product has a pretty good following of believers in the health benefits of it for an aging population. So I'll kind of leave it at that. Brad or anything?
No, I got you. Rand? Okay.
When you think about your leverage, just making sure, what is the rate at which you expect to be de-levering? Does this change your ability to provide a dividend? You know, does that flow, does that delay the year or how are you thinking about that? You know, is there a line in the sand that will limit your debt to EBITDA just going forward and that we, you know, I know you said this is the end, but making sure that that is without hesitation, you know, no change to that.
With DGD 3 coming on, Ken, and with the level that ballpark that I mentioned earlier, that we'll be at Q3 and with the JV debt-free and with the base business performing as it is. No, I mean, we see ourselves at the end of 2023, you know, being, we go to the rating agencies here in a few weeks and see ourselves being well at our target. I'll just kind of put it at that by the end of next year, or sometime in 2023. It leaves us really with, as we've been saying for over a year, really the
I think this one, you know, was on the M&A side where we had said before, we can do some of all the above. We'll still be in a position for that discussion in 2023 for consideration in 2024. Randy, is that? Yeah. I mean, you know, number one, we're committed to maintaining a strong balance sheet 2.5x . First dollars are gonna go there to get that done. We've got a couple bonds coming due in the next three years. Ultimately, we're gonna add. I'm hopeful and confident that we're gonna add an investment grade rating here. That's our focus.
Then as if we're correct with our prediction on Diamond Green Diesel's performance and the sustainability of the core business earnings, then, clearly, as Brad says, there'll be enough to do a little bit of everything. We've continued to buy back stock opportunistically as we can. You know, we're not gonna go out there and announce any giant buyback and to that, but at the end of the day, de-lever, buy back opportunistically, and then we'll be in a position to evaluate a meaningful dividend.
You alluded to the rendering business, obviously doing well. Is that what you're implying by being able to do this? That it's actually at least in line, if not better than your expectations, if you're gonna be able to de-lever? I can't do the math that quickly in my head, but it seems like that's what you're implying. Is that a fair assessment?
You're trying to put words in my mouth, but that's okay. You know, protein prices and fat prices have continued to maintain. If you look at protein prices around the world, they're pretty close to the 10-year average, maybe a little over in a couple products. Fat prices, you know, kinda fell off here a little bit, but not much. You know, we are in process of starting up number three. You know, there's just a ton of demand for, you know, HVO or RD projects or potential projects out there. I think the core business stays, you know, at where it's at. You know, we'll just kinda see. I mean, clearly, you know, I think you always have to take a little downside.
You know that I've always tried to be conservative, Ken, with it. I mean, you know, after spending, I've been in Europe now for a week and, you know, it, you know, and yesterday I was in Poland, and we had fighter jets fly over us. You know, this place is a bit crazy. I watched my Polish team put a slide up to say that energy prices are up 500% year-over-year. I mean, clearly, we've got some challenges here. You know, we're doing what we know how to do in maintaining margin. You know, that's where we're signaling a very strong core business for this year and next year. There's no change in our voice.
There's some moving parts here, but we're bigger, and I think that'll do a lot of the offset.
Great. I appreciate it. Thank you, guys.
Our next question comes from Paul Cheng with Scotiabank. Please go ahead.
Thank you. Hey, Randall, just two questions. First, you mentioned that your existing plant is already running at full capacity, and you are adding this new set of assets. What is the assets current utilization rate? Or in other words, how much of the business that you can improve on, you need to add new ones and/or trying to expand or bottleneck? What are bottleneck opportunities that are there? The second question is, just curious, when you're buying this business, is it primarily the capacity or you are buying the relationship with the slaughterhouse and all that.
In other words that if you don't buy this and if you're trying to go in and trying to build this facility yourself, is it a feasible option at all? If it is, what are the economics between to buy or to acquire? Thank you.
No. Great questions, Paul. I think pretty simple to answer, to be honest. Number one, this is a very well-run business. These are excellently constructed and managed plants, with a great management team, sales team, commercial team, et cetera. The alternative as we evaluated it was to go build one or two plants to add the extraction capacity we needed. The timing of that was 3-5 years, between equipment delays, design, permitting, location. So, you know, we kinda believe, as we've said, we've been growing at 15%—13%-15% for the last, you know, seven years. We think that those rates can be attained, and it just made sense to jumpstart this by adding a well-run business that was seeking a new owner.
It just met all of the criteria. As far as operating efficiencies, I'm gonna challenge the Darling team. I think they can teach us something. I know those might be hard words that I'm gonna hear back from my colleagues and team members. No, this is a well-run business. I can't wait to put them together. I think that clearly one plus one is a very solid two plus here. Not only geographically but globally and our ability to service our customers. We're at a point here where we were out of capacity and unable to take additional orders to meet the demand that our customers were bringing us. This is something that we really, the team worked hard on, and then we look forward to getting it through the regulatory agencies.
Randall, can we go back into my first question that the asset that you buy, are they already running at full capacity or that there's still quite a fair amount of room for you to be able to grow the business without adding new capacity?
Yeah. I mean, just to, you know, the number that I'll give you is the boilerplate number until we're through regulatory. They have the ability to produce 46,000 tons, and we'll just say they're running that or very close to it.
Okay. Thank you.
Thank you.
Our next question comes from Sam Margolin with Wolfe Research. Please go ahead.
Hello. Thanks so much.
Hey, Sam.
Thanks for the comments on the valuation. You know, easy enough to back into the EBITDA from that. I was wondering if you could speak to anything worth knowing as far as operating nuances between producing collagen and other products that come out of food, whether there's like that influences margins. Essentially, I'm just trying to see if I can triangulate around the top line value uplift from these products versus, you know, your legacy products in food.
I think it's pretty similar, you know, from an operating standpoint. I think at the end of the day, they're a little lower cost than we are today. That would come from, remember, the geography they're operating in. Really you get down to the energy cost now of my four European factories. You know, end of the day, I don't know that I can triangulate you enough without stepping over the line today, Sam, so bear with me on that, and we'll give more detail as we get closer here.
Understood. That's all I had. Thanks so much for all the color up to me.
Our next question comes from Benjamin Kallo with Baird. Please go ahead.
Hey, Randy. Maybe two questions. First of all, just on collagen, economic sensitivity as you get more levered to that, I guess, you know, as we make less money, maybe we don't do all that health and wellness stuff. How do you think about that? That's my first one.
Well, you know, we've spent a lot of time with our customers, and I don't know. I'm not saying if we go into a deep recession or, you know, that we don't see some impact. We're not really. You know, we're seeing some slowing around the world of the higher-end products, but I don't wanna call it material at this time. You know, there's a whole bunch of brands out there that are all fighting for share and really at the end of the day, there's a clear leader out there that we support and respect. The, as I said, the applications that this is going in are very much growing and in both intensity and timing here.
You know, there's a difference of buying that 100% jar full of collagen and adding it to your coffee or water or juice. As we tell people, remember, this is a micro ingredient around the world. You know, I don't know what the final size of the whole collagen gelatin market is, but somewhere 450,000-500,000 tons around the world. You know, it doesn't take much demand for this to be a pretty significant mover in a sense for us. I mean, it's a product we're core in.
You know, we've always talked also, Ben, that, you know, we're moving up the value chain, not only with the gelatins, the collagens and then into the biomedical area. This is just part of an execution of an overall larger strategy of taking residues out of slaughterhouses and making value-added products.
I guess maybe two more. Just one thing I get questioned a lot about is just from you know the omega-3 and FMC and you know having to sell that business off. Is there anything analogous about that? That was under Pat when it came out that it became more competitive. Does that relate in any way in your mind to what collagen does right now?
Not really. You know, I think collagen, especially animal-based collagen, has. You know, remember it has, I think, what, 19 of the amino acids, and there's 20 of them, and I think it lacks tryptophan. It's kind of the full meal deal out there, and that's what's being realized in it. You know, clearly there. It's a pure protein in a sense, but what happens when you hydrolyze it then is you create the ability for, you know, improved digestibility within the and absorption within the bloodstream. You know, there's some benefits here that are so obvious that nothing else has at this time.
I'm not really, you know, we're, you know, as we would say in the gelatin business, in the encapsulation business, we can't get prices too high or HPMC, the alternative, which I'd still call almost a chemical, comes into play then. But there's no substitute derivative here that really is that we have any fear about. Where did we take share from? We took share from the whey business. You know, you think of the Glanbia of the world and whey. That's probably the only, you know, what I'd call really synthetic competitor that's out there today.
My final question, I guess we couldn't do anything anymore because there's probably geopolitical risk everywhere. You know, you're kind of doubling down in Brazil there. Just how do you think about that? There's an election, I think, going on and stuff. How do you think about that, you know, with these two big acquisitions? Thanks.
Yeah, I mean, clearly, we're not putting our money on the pass line here. We're doubling down for the long term. We've got a great management team down there. We've managed in a hyperinflation economy. You know, I think we feel pretty good. You know, clearly, the Lula Bolsonaro issue is, you know, depends on who you talk to, how that's gonna go. But at the end of the day, Brazil remains committed to, you know, continuing to grow its economy, and clearly, agriculture and food are a part of that. So, you know, I feel pretty darn good about it, you know. It's not for the faint of heart, as we always say, and there's always risks in doing business there.
If you had me handicap stuff today, I feel really good about Brazil, probably better than China, for the near and long term. I think at the end of the day, Brad, you got any feeling on you wanna?
Just, that's where the growth in animals are too.
Yeah.
You mentioned our management team.
Yep.
Party there.
Okay.
Our next question comes from Matthew Blair with Tudor, Pickering, Holt & Co. Please go ahead.
Hey. Hey, Randy. Congrats on the deal. I was hoping to agree on how this deal came about. How long were you talking to Gelnex, and ultimately, why did they decide to sell?
Yeah, you know, remember, my time when I'm not talking to you guys is out seeing folks and trying to dream and scheme about growing the company, and Gelnex was always one of them on it. As we laid out the collagen peptide strategy for our board, it became very apparent that we had a kind of a significant issue coming on relative to capacity. I mean, the greatest thing you can ever do in my chair is build products for customers that want your product. Here we were with multiple customers wanting more and more of the product.
You know, we were at a point where we were gonna have to potentially say no or take 3-5 years to get there, with very significant money to rebuild some of these facilities. We reached out to the Gelnex family, gave them the Darling story and the Rousselot story and got them, and at the end of the day, they retained Santander, the investment banker here about six months after we made the pitch, about a year ago, I guess, today.
Yeah.
Morgan Stanley assisted us with the Portuguese side here, and we got the deal done. As I said, you know, I just welcome the management team to the family here. They're sharp people, and they're a great cultural fit for us. We just look forward to putting the two companies together when the authorities give us the chance.
Great. Thanks for all the color. How do margins on Gelnex compare to your existing food segment? Is there going to be any sort of, like, integration or synergy benefit over the next couple of years? You know, for example, could you send some of your gelatin over to Gelnex for upgrading or vice versa?
Yeah. You know, Matthew, the way I wanna answer that today is I can't answer that. You know, once you file the regulatory antitrust stuff here, you're really not. What you've seen in the CIM, as you know, in the due diligence process and the VDRs is essentially everybody got the same information, came to their same conclusions, and we don't have access to enough of that data today to give you a fair and honest answer. I mean, fundamentally, do we believe there's synergies there and product optimization and product mix and capacity potential of moving products around? Absolutely. Otherwise we wouldn't have done it. We don't have enough detail today to move any further than what I've said.
Okay. I'll leave it there. Thank you very much.
Our next question comes from Jason Gabelman with Cowen. Please go ahead.
Hey, congrats on the deal. A lot of my questions have been answered. I just wanted to ask, what's the collagen gelatin mix?
Within the Gelnex business versus what the current food business is?
That's Jason, great question. We don't know that answer yet today. We have a guess, but it's only a guess, and we'll save that when we announce the closing. We'll catch everybody up and talk a little more about the strategy of integration then, but that's a to be answered question.
Okay. The rest of my questions have been answered, so thanks for the time.
Our next question comes from Craig Irwin with Roth Capital Partners. Please go ahead.
Thank you and congratulations on another great acquisition. Randy, can you talk about geographic and customer exposure? I know 46,000 tons is pretty substantial capacity and production. Did they have maybe different geographic strength from the core Darling business?
I wish I knew that, Craig. That's one of those to be determined. I mean, you know, like I said, you get to see margins, you get to see, but you don't get to see by plant margins or earnings. I don't know the answer to that yet. What I can tell you is they're very well respected, and I gotta believe they're doing business with people that haven't done business with us or they're doing more business with people we wanna do business with. Stay tuned. We'll tell you more.
Excellent. Over the last few years, you've really done an amazing job growing Diamond Green Diesel. When collagen kicked in as a great opportunity, you grew capacity there, and you've you know, just announced another substantial acquisition to really serve that market well. When you go elephant hunting now, are you looking in different pastures? I mean, are there other areas of the business you'd call out as really exciting opportunities for similar growth to what you've done in collagen and Diamond Green?
Yeah. I mean, it's you know, clearly you know, and I you know, we've been open, Craig, and traveling a lot around the world. I mean, clearly we you know, we look at the SAF as a real opportunity out there. I think we're getting closer. I really do. I'm bullish that that can move forward over time here. You know, clearly the collagen peptide you know, we just shot an elephant and we're gonna have to render an elephant now and integrate it. So this I mean, clearly, as we look you know, we've. We got our hands full with Valley Proteins. That's a business that has an incredible amount of potential. It was tired and then it's just gonna take some time.
Then, you know, we continue to evaluate green energy in Europe. You know what is so different about green energy in Europe and specifically digesting? You know, I think in the Benelux countries, we may be the largest or Western Europe largest digester. Here you're seeing BlackRock and Shell chase Danish assets for billions. This is a business of collecting, transporting, separating waste that can't go to the landfill. You know, as you know if travel in Europe, you've got all different level colors of containers, and at the end of the day, you've got different foods that can and can't from grocery stores, from. I think you're gonna see it move to the consumer level, down to the household residential eventually here.
Our collection network and our ability to put it into green energy is something that really gets us excited 'cause it's what we know how to do. You know, high energy prices are painful for everybody, but this is really something that just gets us there. You know, the four are green energy, core rendering and specialty ingredients growth, the food ingredients growth, and then sustainable aviation fuel. I think there's plenty in that again that I got some money to spend.
Great. Well, keep on dreaming and scheming. We love the progress. Thank you.
Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Mr. Randall Stuewe for any closing remarks.
Hey, Sarah. Thank you so much. You know, great to talk to everybody, share the Darling story one more time. Appreciate the support. Earnings are coming up, and we'll report again then and give you the updates as we know them. Thanks again. Have a great night or a great morning.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.