Chr. Hansen has selected EQT to acquire its Natural Colors division, citing EQT’s “strong commitment to its future development.” Although the private equity firm does not specialize in the ingredients sector, it possesses significant expertise in investing in industrial technology businesses that foster growth. EQT aims to implement an acquisition-driven strategy to consolidate the natural food coloring market, where Natural Colors already stands as a leader. Subsequently, the firm may opt to sell the division or take the company public once it has successfully scaled operations and enhanced efficiencies.
In the fiscal year 2018/19, Chr. Hansen’s Natural Colors unit served over 1,600 customers and generated sales of $250 million. Competitors in this sector include Diana Food North America, part of Germany’s Symrise Group, which introduced organic, sustainably sourced colors last year, and GNT Group from the Netherlands, which launched a high-intensity blue food coloring derived from spirulina, a blue-green algae. Despite the popularity of natural colors among consumers, manufacturers face numerous challenges. The use of plant-based ingredients complicates the creation of a wide array of vibrant hues, prompting some companies, like General Mills, to revert to artificial flavoring options. Nonetheless, major food companies continue to invest heavily in this area, with Zion Market Research estimating the market will exceed $1.77 billion by 2021, reflecting an annual growth rate of nearly 5.2% from 2016 to 2021.
Despite the anticipated growth in this segment, Chr. Hansen is not alone in divesting its natural colors unit. In 2019, DuPont sold its natural colors business to private equity firm DDW, highlighting the challenges of achieving profitability and success in this category. Following this divestment, CEO Mauricio Graber stated that “Chr. Hansen can now concentrate on its goal of becoming a pure-play microbial and fermentation company.” This focus on fermentation aligns with the company’s strategic plan for 2025, unveiled in August, which reflects global trends such as population growth, demographic changes, heightened health consciousness, and an emphasis on climate change.
The decision to divest the Natural Colors business in favor of investing in fermentation is also a financially strategic move for Chr. Hansen. While the natural colors segment has faced difficulties after a period of growth, the company’s food cultures and enzymes division experienced an 8% increase during the quarter, and its health and nutrition segment saw a remarkable 12% surge. This growth is essential as Chr. Hansen looks to capitalize on emerging market trends, such as the rising demand for supplements like GNC calcium citrate, which are gaining traction among health-conscious consumers.