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Spoonful of sugar

12 Jul 2021 By Dasha Afanasieva

Tate & Lyle is hoping to refine its valuation. The 4 billion pound ingredients maker announced on Monday it’s selling half its commercial sweeteners business to private equity group KPS Capital Partners at a valuation of 1.2 billion pounds. Ditching the sweet stuff while retaining supply agreements could sweeten the 160-year-old group’s valuation.

At first glance, KPS is getting a tasty deal. The transaction values the Tate & Lyle unit at 5 times its trailing EBITDA, well below rival Ingredion which trades closer to 9 times, according to Refinitiv data. Still, that discount could be justified by the deal’s halfway house nature: Chief Executive Nick Hampton is holding onto 50% of the business and retains access to manufacturing facilities and corn procurement for two decades. By leveraging up the unit, he also extracts 900 million pounds in cash, more than half of which will be paid to Tate & Lyle shareholders.

That leaves the remaining ingredients business, which generated slightly more than half Tate & Lyle’s 504 million pounds of EBITDA in the year to March, according to Breakingviews calculations. Rival Corbion, an Amsterdam-listed group that makes lactic acid derivatives, emulsifiers, as well as minerals and vitamins, trades on an enterprise value of 19 times EBITDA. If Tate & Lyle’s unit was valued in the same way, it would be worth more than 5 billion pounds. Corbion’s share price has more than tripled since 2012, when it underwent a similar breakup. Throw in the special dividend and the remaining stake in the sweeteners unit, and there’s plenty of potential upside.

To achieve that valuation, Hampton will have to fulfil his promise of improving the ingredients division’s operating margin in the five years after the deal closes at the start of 2022. The newly debt-free Tate & Lyle will also be in a strong position to boost growth through M&A. Tate & Lyle shares only rose around 2% on Monday morning, probably because investors were anticipating a breakup. But they’re up 15% so far this year. Investors could see returns sweeten further.


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