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US equity firm snaps up Degussa's fruit system business

25-Feb-2005

Flavours and texturants firm Degussa will shrug off its fruit preparation business to an American equity company in a sale that prepares the ground for a total divesture of its remaining food ingredients unit.

Private US firm Speyside Equity agreed this week to buy, for an undisclosed price, the fruit systems arm of Degussa that pulled in €64 million ($84.80 million) in sales last year.

 

The business, that supplies conventional- and aseptic-processed fruit preparations for a range of food products from yoghurts to frozen desserts, will now operate under a new name: Sweet Ovations. Headquarters for the firm will be in Philadelphia, reflecting the US focus of the business.

 

Citing insufficient leverage to match the performance of larger commercial players, Degussa, Germany's third largest chemical company, last year announced the sale of its food ingredients arm.

 

Degussa told FoodNavigator.com at the time that the food ingredients division is "too small to be able to attain a leading market position on its own".

 

The food ingredients business pulled in sales of €527 million ($698.36 million) in 2003, generating a small slice of overall revenues for the group that peaked €11.4 billion ($15.11 billion) last year.

 

Speaking with FoodNavigator.com today the firm refused to be drawn into any further details about divestments, only adding that "intensive preparations are underway internally and there is contact with potential investors".

 

But the second quarter may well bring an announcement from the Dusseldorf-firm.

 

The Degussa sale marks new opportunities for food ingredients players looking to bump up their market position in flavours, food thickeners and health ingredients. If units continue to be broken up, ambitious ingredients firm Danisco could be interested in the flavour unit. The Danish firm has voiced its ambitions to be one of the top five global flavour companies - currently around ninth - and the bolt-on acquisition of Degussa's flavours unit could help it on the way.

 

Dominated by a small number of industry players, the hydrocolloids sector is consolidating, particularly in the larger, more mature markets, spurred on by shrinking margins and consolidation among international customers.

 

The texturant unit at Degussa could interest a number of top tier global suppliers of hydrocolloids like xanthan, pectin and carrageenan - all in Degussa's portfolio - including FMC Corporation, acquisitive Irish firm Kerry Group, Danisco and even US firm JM Huber, which last year bought the number one pectin player, CP Kelco.

 

Reports in Financial Times Deutschland last month claim the Swedish financial investor EQT, that acquired flavour firms Haarmann & Reimer and Dragoco in 2002 to form Symrise, indicated shortly after these acquisitions its interest in taking over the Degussa flavourings division.

 

Degussa recently reorganised its food ingredients activities to group the flavours, texturants and bioactive units under the its performance materials division. The flavouring systems target the food, dairy and beverage markets while the texturant arm supplies formulations based on hydrocolloids, blends and lecithins.

 

Degussa is also a key player in health ingredients, such as phospholipids and amino acids, and one of the main European suppliers along with DSM of creatine, an ingredient enjoying decent growth on the back of the burgeoning sports nutrition market. These products are sold under the bioactives unit, recently absorbed into the texturant arm.

 

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