September 30, 2020

By Lynda Kiernan, Global AgInvesting Media

A seismic shift by consumers toward more natural and transparent food ingredients and away from processed and synthetic options is driving strong growth in the natural flavors and colors categories.

These global  segments have seen their fair share of movement and dynamic activity over the past few years as companies and investors seek to capitalize upon consumer trends that lean toward flavorful and colorful, but healthy foods.

The striving for the holy grail of a “clean label” to meet this demand  is expected to translate into a CAGR of 5 percent for the global food flavors market, to reach a value of $19.72 billion by 2026 – up from a value of $13.31 billion in 2018, according to research conducted by Reports and Data. Likewise, the global food colors market, which currently stands at a value of $3.9 billion, is expected to experience a CAGR of 6 percent to reach a value of $5.42 billion by 2025, finds Market Data Forecast. 

With demand as it is, and market expectations reflecting potential opportunity for both businesses and their investors, two deals valued at a combined $1 billion have recently been announced within these two categories.

EQT Acquires Natural Colors Business From Chr. Hansen

EQT – a global investment organization with more than EUR40 million (US$47 million) in assets under management across 19 funds with portfolios spanning Europe, North America, and Asia-Pacific – has agreed to acquire the Natural Colors business from Chr. Hansen for EUR 800 million (US$943 million). 

Headquartered in Hørsholm, Denmark, and a subsidiary of Chr. Hansen, Natural Colors is a leading developer and manufacturer of natural coloring ingredients with a customer bank of more than 1,600 in the food and beverage industries.

The company’s coloring agents are made from all-natural fruits and vegetable concentrates from sweet potatoes, grape skins, spirulina, carrots, and beetroots. These are mainly used in the food and beverage categories where we are seeing the greatest conversion from artificial colors to their naturally derived counterparts – dairy and fruit, confectionery, ice cream, and prepared foods and beverages.

Over the five-year period to 2018/19, Natural Colors’ leadership in innovation, application, formulation, and geographical reach saw the company post growth averaging 9 percent per year to reach sales totaling EUR 224 million (US$262.5 million) in 2018/19.

“I am convinced EQT will be a great owner of the Natural Colors business which has a leading global position in the industry,” said Mauricio Graber, CEO of Chr. Hansen, who went on to note that the decision to divest Natural Colors was made as part of Chr. Hansen’s review process as part of its recently launched 2025 Strategy, adding, “Chr. Hansen can now focus on fulfilling the ambition of becoming a pure-play, microbial and fermentation company with industry leading, profitable growth.”

Once the deal closes in H1 2021, EQT intends to build on Natural Colors’ existing strategy to continue organic growth in its current markets, with a focus on the U.S and Asia. Using the company platform for industry consolidation, EQT plans to pursue an acquisitive expansion within the highly-fragmented foods coloring market.

Further, EQT plans to invest significantly in the company’s organization by strengthening its digital infrastructure, sustainability capabilities, and supply chains. 

“We are immensely proud and humble of having been chosen as the future owner of Natural Colors,” said Mads Ditlevsen, partner, EQT Partners, and investment advisor to EQT IX. “It is a high-quality and truly global business with a proud legacy of servicing customers all over the world for more than 100 years.”

“We are highly impressed by the strong ESG profile, the high-quality organization and talented people we have met during this process, as well as the dedicated focus on food safety. Natural Colors fits very well with EQT’s thematic investment criteria and is operating in two of EQT IX’s five prioritized sub-sectors within Industrial Technology.”

Meanwhile, Natural Colors will benefit from EQT’s in-house expertise in digitalization and sustainability, and its global advisory network, which carries with it experience from developing strong ingredient companies. 

“I am convinced EQT will be a great owner of the Natural Colors business which has a leading global position in the industry,” said Graber.

“During the process it has become clear that EQT showed the strongest conviction in the potential of the business, and the highest dedication to the future development of it. I want to thank all the employees of the Natural Colors business for their contribution to Chr. Hansen over many years and wish them all the best in the future journey as an independent company.”

Glanbia Acquires Foodarom

Glanbia Nutritionals, a wholly-owned subsidiary of Glanbia, announced it has agreed to acquire custom flavor designer Foodarom for C60 million (US$45 million). 

Founded in 2006 by two investors, Pierre Miclette and John Murphy, who are today Foodarom’s CEO and COO respectively, the Canadian company offers turn-key flavors and formulation support to customers in the food, beverage, and nutritional product industries. 

Headquartered in Montreal, Quebec, and with production facilities in Salt Lake City, Utah, and Bremen, Germany, and culinary laboratories in San Diego, California, and Milan, Italy, Foodarom’s flavor library has grown to over 15,000 recipes, consisting of both liquid and powder products for multiple applications.

“We recently shared our ambition to scale the flavors area of our business and we are very pleased to announce this acquisition of Foodarom,” said Brian Phelan, CEO, Glanbia Nutritionals.

Beyond its fruit and botanical flavors, Foodaraom also produces texture enhancers, bitter blockers, sweetness enhancers, masking agents, alcohol smoothers, and mouthfeel improvers that foster the ability to use alternative sweeteners and plant-based proteins in formulations without the taste or texture issues that often come with the use of stevia or pea protein in formulations, according to Food Dive.

“We are excited to welcome their 130–strong team to Glanbia with their exceptional reputation and commitment to flavor excellence,” said Phelan. “I am delighted with the significant additional capabilities we will be able to offer the customers of both organizations by joining our great teams together.”

There have been numerous deals such as this in the flavors space in recent years as companies vie for market share, but the upside of having a foothold in the flavors market has attracted major investors too.

Ambienta, the largest sustainability-focused private equity investor in Europe, has made two significant deals this year as it builds out Nactarome Group – its healthy flavors and ingredients platform.

In January, Ambienta announced the acquisition of Nactis Flavors, a leading producer and distributor of aromatic raw materials, ingredients, and flavors for the food and beverage industries. 

Only months later Nactis was joined by UK-based Create Flavours, a leading producer of natural top-note flavors for the sweet, savory, and beverage end markets. Despite accounting for less than a quarter of overall flavor profiles, top-notes are the highest value-added flavor component, and require significant skill and technological experience to produce.

Also gaining a stake in the flavors space in 2017 was Paine Schwartz Partners, a U.S.-based investor specializing in sustainable food chain investing, when it announced an undisclosed strategic investment in Lyons Magnus Inc., a top developer and manufacturer of fruit-based flavor solutions for the dairy, foodservice, and healthcare industries.

– Lynda Kiernan is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, and HighQuest Group’s Oilseed & Grain News. She is also a contributor to the GAI Gazette. She can be reached at lkiernan@globalaginvesting.com.