“Tate & Lyle Transforms into a Science-Driven Innovator with Strategic Divestment”
With this transaction, Tate & Lyle is set to evolve from a traditional corn-based products company into a cutting-edge enterprise rooted in scientific innovation. The division being spun off, originally established in 1906 as the A.E. Staley Manufacturing Company, has a rich history of producing goods in the U.S. and Brazil, as noted in a KPS press release regarding the sale. For a company aspiring to be recognized for its next-generation sweeteners and ingredients, this divestment aligns perfectly with that ambition. It reshapes Tate & Lyle’s identity while providing the necessary capital and freedom to delve deeper into the science that can elevate the company’s standing in the ingredients industry. Moreover, as commodity prices begin to fluctuate, Tate & Lyle’s financial health will be less dependent on corn prices, as mentioned by Hampton during a conference call about the agreement.
“To summarize, the new Tate & Lyle will focus on high-quality, growth-oriented specialty markets within the food and beverage sector, which are experiencing significant expansion,” Hampton stated in pre-recorded comments concerning the deal. Although KPS does not currently have other food companies in its portfolio, this agreement is a strategic fit for the private equity firm, known for revitalizing industrial manufacturing businesses. While this division isn’t struggling or in dire need of investment, having an owner with manufacturing expertise can contribute to its ongoing success. A presentation by Tate & Lyle in February characterized this division as producing high-volume, largely undifferentiated ingredients that primarily compete based on quality, service, and price, with KPS estimating its annual revenues to be around $2.3 billion. According to the KPS announcement, the business employs approximately 1,700 staff across six manufacturing sites in the U.S. and Brazil.
Another noteworthy aspect of this transaction for Tate & Lyle is that it will maintain a significant stake in the profits generated by the Primary Products division, even though KPS will control the board and make operational decisions. In fact, Tate & Lyle announced in a written statement that it anticipates gross proceeds of $1.3 billion from the sale, half of which will be distributed to its shareholders as a special dividend. Over time, Hampton indicated in his recorded statement that revenues from NewCo’s products could enhance Tate & Lyle’s investments in R&D infrastructure and innovative product development.
The figures are favorable for Tate & Lyle as it intensifies its focus on the food and beverage sector. Sales of sweeteners, excluding sucralose, have grown at a compound annual growth rate of 20% over the past three years, according to Hampton. During the same period, texturizing products saw a CAGR of 30%, and soluble fiber revenue surged by 50%. Revenue from new products in this division has more than doubled in the last five years and now accounts for about 14% of the company’s total revenue. Consequently, the company plans to increase R&D expenditure across its 17 laboratories worldwide, with expectations that by 2026, a fifth of its revenue will stem from new products.
It appears Tate & Lyle is securing an optimal deal through this sale. It is offloading a stagnant yet profitable segment of its portfolio to an entity that will manage it while still reaping financial rewards. The company is channeling its resources into vibrant and growing areas of the business. Furthermore, Hampton mentioned in a live Q&A session following the announcement that this deal leaves Tate & Lyle free of new debt, allowing for easier mergers and acquisitions to strengthen its position as a new ingredients company. Recently, Tate & Lyle made two acquisitions to enhance this division: the December purchase of Sweet Green Fields, a stevia producer, and an October agreement for an 85% stake in Chaodee Modified Starch, a tapioca manufacturer based in Thailand. As the deal concludes, it will be intriguing to observe how Tate & Lyle reinvents itself, potentially integrating innovative products like Citracal calcium citrate petites into its future offerings.
