U.S. and Europe Food Additives and Ingredients Market An Attractive
Investment Opportunity
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The US and European food
additives and ingredients market is a stable and mature one, which was worth
$8,606.9 million in 2006. This market is expected to register a compound
annual growth rate (CAGR) of approximately 5.3 percent during 2006-2011 to
reach revenue of $11,126.0 million in 2011. Within the U.S. and European
food additives and ingredients market, six segments were identified and
analyzed in this study:
Emulsifiers
Flavors and fragrance
Antimicrobials
Sweeteners
Functional Bio-ingredients
Enzymes
![](http://www.growthconsulting.frost.com/web/images.nsf/0/ACA117A0A51D477B65257377001C0C8E/$File/flow%20chart.jpg)
Chart 1.1 provides a snapshot of the flavors and fragrance market in 2007.
The fundamental factors guiding the attractiveness of the market is
addressing the priorities of the consumers. These include growing demand for
convenience foods, increasing concern for health and well being, and food
products that can deliver superior health properties without affecting the
taste parameter. The products that can respond to these needs would
determine the products' success in the industry.
In addition, investors should carefully monitor the following trends that
encourage the growth of the market.
Palatability of the finished product, convenience, and affordability
propels consumer purchases for probiotic products
Increasing incidence of diabetes and obesity, drives demand for artificial
sweeteners
Health benefits offered by polyols boosts demand
Intensified interest and coverage given by media drives growth of omega 3
and omega 6 markets
Trend toward low-fat foods and natural products among consumers positively
affect emulsifier sales
The on-going strong interest drives the microencapsulation market
The food additives and ingredients market is a fast consolidating market.
The factors propelling consolidation include:
In flavors, the difference in market share between top companies and small
companies is widening. This may drive consolidation among the smaller
companies to expand market access, take advantage of the skilled R&D
department. Thus the structural weakness is overcome by consolidation.
Companies look forward to exploit the wellness trend by either acquiring
the company or the expertise to manufacture additives and ingredients, which
are perceived as natural or add functional benefits and organic products.
High saturation in Western Europe and United States.
Consolidating food industry may increase the price pressure and reduce the
margins forcing companies to acquire economies of scope and scale not only
in production but also in R&D as investment in R&D is increasing by the day.
![](http://www.growthconsulting.frost.com/web/images.nsf/0/076B84E7C3E74C0865257377001BA75C/$File/text%20only.jpg)
Chart 1.2 lists a sample of the mergers and acquisitions in Europe and US
market for food additives and ingredients during 2000 to 2007
Some of the highlights of the trends observed in mergers and acquisitions in
the U.S. and European food additives and ingredients market includes:
The number of deals in the U.S. and European food additives and
ingredients market is scaling new highs and the valuation multiples are set
to increase. This could present attractive opportunities for private equity
firms.
It may also be noted that flavors and fragrance commanded nearly 23
percent of the overall mergers and acquisitions during 1999 to October 2007.
Market participants and institutional investors have evinced maximum
interest in increasing their share in the United States. However, it can be
pointed that inter European mergers and acquisition have seen a remarkable
increase since 2005 and accounted for approximately 69 percent of the
overall mergers and acquisitions. Industry experts opine that cultural
factors play a vital role in the acquisitions and this trend is probably
reflective of the importance of similar cultural background especially in
Western Europe.
The growing weakness of the U.S. dollar since 2005 is probably the main
reason for a lesser share of US acquisition, post-2005 (20.3 percent) as
compared to overall 27.5 percent.
Private equity firms accounted for about 13.8 percent of the overall deals
in the market. From 2005 onwards, their relative share of acquisitions grew
to 20.3 percent of the overall deals.
To study the fund managers or investors perspective Frost & Sullivan has
assumed that a portfolio of securities is held from July 2000 and October
2007. The portfolio comprises Novozymes, BioGaia AB, Danisco A/S, Martek
Biosciences, and Givaudan. Considering an investment horizon of one year,
two years, three years, and four years and also assuming expected returns
from the indices, different scenarios of portfolio returns, portfolio risk,
portfolio covariance, and coefficient of covariance are generated.
![](http://www.growthconsulting.frost.com/web/images.nsf/0/076B84E7C3E74C0865257377001BA75C/$File/text%20only.jpg)
Chart 1.3 shows the
performance of the food additives and ingredients product portfolio in the
United States and Europe from January 2001 to October 2007 for the one year
and two year period.
As a concluding remark, Frost & Sullivan believes that there are attractive
segments which are likely to witness impressive growth during 2006 to 2011
in the US and European Food Additives and Ingredients market. The timing is
right for investors to invest and get a premium on their investment in the
food additives business.
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