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NEWSLETTER Food Ingredients Adding Zest to the Food & Beverage Industry November1 NEWSLETTER 2019 FOOD & BEVERAGE www.globalma.comwww.globalma.com CONTENTS 1 Key Insights 03 2 Introduction 04 Uses 04 Types of Food Ingredients 05 Food Ingredients Market by 09 End Use 3 Key Market Dynamics 10 Market Drivers and Challenges 10 The Food Ingredients market is at a key Trends 11 phase of evolution, witnessing a pull towards functional ingredients as more F&B manufacturers focus on 4 M&A Overview 12 consumers’ demands for health focused products. Additionally, the B2C Overview 12 ingredients market is also Major Deal Drivers 13 demonstrating growth with more consumers engaging in leisure cooking M&A Activity Overview 14 and being attracted to exotic offerings. Select M&A Transactions - Strategic 14 The industry is making several changes Select M&A Transactions - Financial 18 such as increasing R&D, improving supply chain and joining forces with niche players to gain a competitive edge Peer Trading Analysis 20 over other ingredient manufacturers. 5 Our Global Food and Beverage Team provides extensive sector-specific Global M&A Partners – Food & 25 expertise and close relationships with 6 Beverage Team global buyers and sellers, both within your home territory and throughout the world. Many of our advisory transactions are cross-border. 2 NEWSLETTER FOOD & BEVERAGE www.globalma.com 1 Key Insights The Food Ingredients industry is an essential component in the Food & Beverage supply chain. Positioned amid raw materials and final products, ingredients provide a wide range of applications, including further product development and improving consumer health across the Food & Beverage landscape. Food ingredients improve product taste, texture and appearance while enhancing shelf life and nutritional value. This $76 billion industry is characterized by high barriers to entry, significant organic growth, and strong margins. Historical growth has primarily been fueled by increasing demand from both consumers and food producers for products derived from specialty ingredients which offer functional and nutritional benefits. The sector has largely outperformed the broader Food & Beverage market over the past decade. We expect these trends will continue to drive growth: • Favorable Sector-Specific Trends: While ingredient sales span the globe, manufacturers have begun to optimize supply chains and establish regional production, R&D, and sales departments. This allows companies to capitalize on local market knowledge and spur innovation which are critical to their success in new product development, improved applications of existing products, and continuing food ingredient modernization and specialization. • Food & Beverage Long-Term Outlook: Macro trends impacting the global Agricultural and Food & Beverage sectors are of major significance to Food Ingredients industry performance. Notably, market forces such as a growing middle class; rising disposable income in developing countries; changing consumer lifestyles; increased adoption of healthy, convenient foods; and rising demand for meal replacements and ready-to-eat foods are all sparking demand for growth and innovation in the Food Ingredients industry. Food ingredients companies are challenged to address growing demand for and increased specialization of food products to include changing tastes and preferences. The most successful companies are proactive and take the necessary measures to address evolving consumer habits, including: • Adapting product portfolios to satisfy new consumer trends and local regulations, resulting in a shift towards offering more value-added ingredients (versus traditional synthetic ingredients) • Increasing local manufacturing presence and production capacity to meet customer demand • Attracting a skilled workforce, retaining existing talent, and automating production lines • Anticipating consumer needs concerning food properties, safety, traceability, and sustainability 3 NEWSLETTER FOOD & BEVERAGE www.globalma.com 2 Introduction Food ingredients provide a wide range of applications and are an essential component in the Food & Beverage supply chain. Ingredients not only include substances added to food to achieve a desired effect, they also include food additives which serve specific technical or functional purposes during processing, storage, and packaging. There are two types of food additives: • Direct Food Additives: Direct additives impart specific technological or functional qualities and constitute a large segment of the food additives market. Examples include stabilizers used to help prevent separation of nutrients in fortified milk products and phosphates used as leavening agents in baked goods. • Indirect Food Additives: Indirect additives are not intentionally added to food but may be present in trace amounts as a result of processing, packaging, shipping, or storage. Examples include adhesives or packaging components that are declared as safe materials come in contact with food in lesser amounts. Food ingredients are derived primarily from natural or chemical sources. Natural sources include minerals; plants such as seaweed and kelp; microbiological substances (e.g., probiotics); and even crops or food items that would otherwise be discarded such as corn or citrus fruit rinds, respectively. Artificial ingredients are derived from organic chemicals such as hydrocarbons. Uses Food ingredients allow manufacturers to produce a wide variety of foods that are enticing, tasty, nutritious, consistent, and safe. Though used in small quantities, ingredients provide a major contribution to the vast and varied food supply chain, ensuring that foods look and taste the way consumers demand. Major uses for food ingredients include: To support nutrition To maintain product To prevent spoilage during delivery quality and freshness transport, storage and sale To extend shelf-life and To make some foods To aid in the processing prevent food waste more affordable and preparation of foods To make foods more appealing and ensure that familiar foods have consistent qualities 4 NEWSLETTER FOOD & BEVERAGE www.globalma.com Introduction Types of Food Ingredients Appearance, freshness, taste and texture are a few of the major contributions of food ingredients. They help to maintain certain desirable qualities associated with various foods by aiding in the processing and preparation of foods. Based on the functions they serve in food processing, food ingredients are classified in the following key categories by The International Food Additives Council (IFAC) - a global association representing food ingredients manufacturers that strives to promote science-based regulation and the global harmonization of food ingredient standards and specifications: Acid Regulators Acid Regulators are used to control and alter the level of acidity or alkalinity for food processing, taste, and safety. They can also be used as thickening and flavoring agents. Adequate control of pH levels is important to inhibit growth of hazardous bacteria and ensure a longer shelf life of food products. Regulators can be organic or mineral acids, bases, neutralizing agents, or buffering agents. Common examples include citric, acetic, ascorbic, lactic, propionic, and sorbic acids. Usage: Bread, fruit drinks, pie filling, meat and poultry, wine, jams and jellies, processed dairy foods. The Acidity Regulators market size was worth $5.2 billion in 2018 and is expected to experience significant demand in the future owing to increasing application in beverages, condiments & dressings, sauces, bakery & confectionery and processed food. Anti-Caking Agents Powdered foods often clump together and change texture after absorbing water. Anti-Caking Agents help to prevent this from taking place by keeping solid food in its free-flowing form. Many Anti-Caking Agents are derived from natural sources, such as silicates - minerals that are among the most common on earth. Calcium silicate is a common anti-caking agent found in table salt, which helps absorb both oil and water to reduce salt particles from clumping together. Other agents include the multi-functional mannitol (also a humectant, sweetener, and texturizer) and microcrystalline cellulose (also a binder, stabilizer, and bulking agent). Usage: Table salt, flour, sugar products, powdered milk, grated cheese, cake mixes, egg mixes. The Food Anti-Caking Agents market is projected to witness a CAGR of 4.4%, growing from $634.8 million to $822 million during 2014-2020. 5 NEWSLETTER FOOD & BEVERAGE www.globalma.com Introduction Colors Colors are used to balance and enhance naturally-occurring colors in foods. In addition, they are often used to give colorless food life, making it more appealing and fun for consumers. Two major types of Food Colors include natural colors, often exempt from certification because they are naturally sourced from vegetables and minerals, and synthetic colors which require approval from food safety authorities. Some of the most commonly used colors include anthocyanin, carotenoids, chlorophyll, and turmeric. Usage: Candy, margarine, beverages, cheese, jellies, yogurt, baked goods. The Food Colors Market is estimated to be $3.9 billion in 2018 and is projected to reach $5.1 billion by 2023, at a CAGR of 5.7% during the forecast period Food Cultures Food Cultures are safe, live bacteria, yeasts, or molds used in food production and a characteristic food ingredient. They occur naturally in foods or are added to provide acidification, texture, and flavor.