Established market player to snap up National Starch

Related tags National starch Maize Starch Wheat

Speculation is growing about potential buyers for National Starch Food Innovation with ADM emerging as a likely contender, according to one industry analyst from Frost & Sullivan.

A sale is expected before the end of the year and National Starch is likely to be snapped up by a market leader, said Chandrasekhar Shankaar, research analyst, foods and beverage ingredients practice at Frost & Sullivan.

Such a move could then increase the bargaining power of starch manufacturers struggling with increasing raw material costs, he added.

Shankaar told “I wouldn’t expect someone new to come in and buy National Starch.

“Starch has been an extremely consolidated market. It is not a market where you can make huge profits from day one unless you are already established.

“The industry is generally consolidating because there is a huge amount of pressure on starch manufacturers as the price of raw materials has been increasingly.

“They have not been able to transfer these costs and margins are reducing.”

National Starch is a global supplier of nature-based functional ingredients.

In January Akzo Nobel NV became the new owner of National Starch and Chemical Company as part of its acquisition of ICI. Akzo made clear its intention to seek a new owner for the specialty starches business, which boasted half year revenues of about $619m in 2007.

A National Starch spokesman told Akzo is “anticipating we end up sold by the end of the year”​. He indicated that companies had expressed interest but it was “business as usual” for its customers.

Demand for starch

In North America starch is typically used as in ingredient for improving texture, thickening or binding in almost all food products. Major sources of starch as an ingredient in food production are corn, rice, wheat and potatoes.

The total utilization of starch in the world is 62 million tons which may approach 70.00 million tons by 2010, according to a recent report from S K Patil & Associates. This is an annual global average growth of two-to-three percent, with the US expected to grow by two percent a year.

In 2007 Tate & Lyle sold five wheat starch production facilities in Europe to Syral, a decision linked to the effect of high wheat prices on the industry.

However, last month Bunge announced a deal to acquire Corn Products International for about $4.8bn. The acquisition has already been approved by shareholders of both companies and is expected to close in Q4. It means Bunge will extend its portfolio of ingredients to higher value sweeteners and starches.

Potential buyers

Looking at the major players in the starch market Shankaar said: “I don’t see any reason why Tate & Lyle would want to purchase National Starch.

“Cargill is the market leader. They can buy it but there is no great benefit they are getting because they are the established leader.

“I think ADM has a higher probability of buying National Starch. It is huge in terms of sweeteners so there would be a synergy of their products with the value added starches which National Starch is good at and ADM is not as good at.”

Shankaar said: “Because of the CPI acquisition, the difference between Bungee and ADM has closed. ADM would want to make sure it stays a clear challenger in the market by buying National Starch.”

He stressed that this was informed speculation but said the current climate was conducive to a deal happening soon.

As a rough estimate Shankaar said that a buyer was likely to pay between $5.5bn and $6bn.

And if a major player did acquire the business, he added: “The bargaining power of these starch manufacturers is going to increase down the line so they might be able to account more for the increasing costs they are experiencing.

“Companies such as Unilever might have to shell out more money for getting these starch ingredients.”

An ADM spokesperson said they would not be able to comment in time for publication.

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