Tate & Lyle banks on prebiotic potential as Quantum deal is finalized

09 Jun 2022 --- Acknowledging heightened activity in the oligosaccharides market for gut health, food ingredient supplier Tate & Lyle has completed the acquisition of Quantum Hi-Tech, a key prebiotic dietary fiber business located in Guangdong, China. Quantum engages in the research, development, production and sale of fructo-oligosaccharides (FOS) and galacto-oligosaccharides (GOS).

Together, FOS (derived from sucrose) and GOS (from milk sugar/lactose) represent around 25% of the global dietary fiber market which is forecast to grow at around 6% per annum, according to Tate & Lyle.

“This acquisition significantly strengthens our fortification platform and our position as a leading global player in dietary fibers, while extending our presence in China and Asia,” remarks Nick Hampton, Tate & Lyle CEO.

The acquisition expands Tate & Lyle’s added-fiber business in China and Asia, targeting gut health across various categories including dairy, beverages, bakery and nutrition. Gut health has been a notable star in the company’s trend forecast.

In China, which currently represents the majority of Quantum’s sales, the FOS and GOS market is forecast to grow at around 10% per annum.Oligosaccharides in the spotlight
In China, which currently represents the majority of Quantum’s sales, the FOS and GOS market is forecast to grow at around 10% per annum.

Prebiotic oligosaccharides are a type of dietary fiber that feeds healthy bacteria in the gut and has been demonstrated in studies to affect the gut microbiota’s balance, resulting in improved gut health and mental well-being.

Commercial interest in the functional oligosaccharides market has been globally developing over the last year, as more research sheds light on their efficacies. Human milk oligosaccharides (HMOs), for instance, have been shown to selectively encourage the growth of beneficial species and subspecies of Bifidobacteria in babies’ digestive systems. 

Last October, China’s Ministry of Agriculture and Rural Affairs confirmed the safety of six manufacturing strains to produce HMOs, thus opening up the regulatory pathway for this oligosaccharide variety. 

More recently, functional ingredients innovator FrieslandCampina Ingredients introduced the “highest purity” prebiotic Biotis GOS-OP High Purity within its Biotis galacto-oligosaccharide portfolio for adult gut and brain health, in addition to the company’s prebiotic infant nutrition solutions.

“FOS and GOS fibers are highly complementary to our existing fiber portfolio and will allow us to offer a broader range of solutions to our customers across key markets,” comments Tate & Lyle’s Hampton on the new acquisition.

Quantum’s financial performance
The transaction is subject to approval by the shareholders of ChemPartner, a public company listed in China, of which Quantum is a wholly-owned subsidiary.

At completion, consideration will be paid in cash for 100% of the equity interests in Quantum.

For the 11 months ended November 30, 2021, Quantum generated revenue of US$46 million and EBITDA of US$14 million. 

Prebiotic oligosaccharides are a type of dietary fiber that feeds healthy bacteria in the gut.The acquisition is expected to be accretive to revenue growth and EBITDA margin for Tate & Lyle in the first year of ownership.

The management team of Quantum will join Tate & Lyle at completion. Closing of the transaction is expected to occur in the second quarter of calendar year 2022.

“Tate & Lyle, with its global customer reach, strong focus on R&D, and strong fiber portfolio, is the ideal company to take Quantum on the next stage of its development,” concludes Zeng Xianwei, chairman of the board at ChemPartner.

“Landmark year” for Tate & Lyle
The previous fiscal year was hailed as a “landmark year” for Tate & Lyle. In its latest review, the company reports double-digit organic revenue growth across all regions and double-digit profit growth despite significant inflation across the supply chain.

The company posted £1.4 billion in revenue (US$1.7 billion) in 2021 revenue, at an 18% growth compared to the previous year.

The group has been focused on growing its specialty food and beverage solutions business, observing volume growth of +5% in this segment, with a “particularly strong” performance from Asia, Middle East, Africa and Latin America. Revenue for this segment was recorded at an 19% increase with double-digit organic growth across all regions.

During the year, Tate & Lyle’s North America revenue from bakery and snacks grew by 19% and by 12% in beverages, supported by demand for its fiber and stevia solutions.

In Europe, dairy grew by 14% helped by demand for clean label solutions. In Asia, Middle East, Africa and Latin America, revenue grew by 25% with good progress across the company’s focus categories, as customers here continued to demand solutions that reduce sugar, calories and fat in their products.

The company also observed “robust performance” in its sucralose business, with volume up by 15%, led by strong demand in beverages. Sucralose benefited from a combination of recovering out-of-home consumption leading to strong volume growth in beverages, increased volume from the optimization of production at Tate & Lyle’s plant in McIntosh, Alabama.

Revenue in the sucralose segment recorded 13% growth, with higher volume partially offset by customer mix. Profit rose by 15% at £61 million (US$76.4 million).

On completion of the sale of its controlling stake in personal care and nutrition business Primient last July, Tate & Lyle received gross cash proceeds of approximately £1.1 billion (US$1.4 billion), taking into account estimates of cash, debt, debt-like items and working capital balances at completion.

After one-off transaction and separation costs, as well as estimated tax liabilities associated with the transaction, net proceeds were approximately £0.9 billion (US$1.2 billion). 

By Benjamin Ferrer