Tate & Lyle takeover proves sweet for private equity
Tate & Lyle has proved an enticing morsel for private-equity group KPS Capital Partners, which is buying part of its operations. Matthew Partridge reports
In the “latest swoop by private equity on a British company”, Tate & Lyle (T&L) has agreed to sell 50% of its “primary products” division to private-equity group KPS Capital Partners for $1.3bn (£940m), says Hannah Boland in The Daily Telegraph.
The division makes corn-based sweeteners and industrial starches, and currently accounts for most of Tate & Lyle’s £2.9bn annual sales. While Tate & Lyle will own half of the equity in the new company, KPS will have board and operational control of the venture.
The deal may look like a typical buyout firm “slash and burn”, but in reality it is a “creative carve-out”, says Lex in the Financial Times. This is because it allows Tate & Lyle to separate out a part of its business that has consistently delivered lower margins than the two other parts of the firm.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
In fact, there is some evidence that the division is the reason why Tate & Lyle trades at a lower multiple of earnings than its rivals. At the same time, Tate & Lyle will “maintain some connection” with its primary products unit through its 50% stake, allowing it to make more money if a full sale follows.
Potential ignored by public markets
Still, it is hard to escape the conclusion that once again a buyout firm has been able to spot the type of value that “is often ignored in public markets”, says Ashley Armstrong in The Times. While Tate & Lyle’s primary-products division might have delivered “sluggish growth”, the board really should have been able to get a better price given that it “still has £1.3bn of assets, is profitable and generated £1.7bn of sales last year”.
It looks as though KPS will emerge from the deal with a hefty profit once it applies some “ruthless cost-cutting”, followed by a relisting “with a new name and valuation”. There’s no denying that KPS seem to be getting a “tasty deal”, says Dasha Afanasieva on Breakingviews. The transaction values the Tate & Lyle unit at five times its trailing Ebitda, “well below rival Ingredion, which trades closer to nine times”.
Nonetheless, the deal could prove good news for Tate & Lyle too, as the newly debt-free group will now be in “a strong position to boost growth through mergers and acquisitions”. Ultimately, the success of the restructuring will depend on whether CEO Nick Hampton can boost margins in the remaining ingredients business.
While Tate & Lyle plans to return £500m of the money raised from the deal to shareholders through a special dividend, the rest of the money will be used to “strengthen the balance sheet and invest to accelerate growth”, says Deirdre Hipwell on Bloomberg.
Hampton is particularly keen for Tate & Lyle to harness growing demand from consumers “for food and drinks that are lower in sugar, calories and fat, and contain added fibre”. He believes that such investment is urgent as the pandemic has greatly accelerated demand for healthier food and drink.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
-
Will a Santa Rally bring festive cheer to investor portfolios this year?
Investors will be hoping for a seasonal stock market boost in December
By Marc Shoffman Published
-
ChatGPT turns two: how has it impacted markets?
Two years on from ChatGPT’s explosive launch into the public sphere, we assess the impact that it has had on stock markets and the world of technology
By Dan McEvoy Published
-
4Imprint makes a strong impression – should you buy?
4Imprint, a specialist in marketing promotional products, is the leader in a fragmented field
By Dr Mike Tubbs Published
-
Invest in Glencore: a cheap play on global growth
Glencore looks historically cheap, yet the group’s prospects remain encouraging
By Rupert Hargreaves Published
-
How to save the dying UK stock market
The UK stock market is in long-term decline. To fix that, we must first recognise why equity markets exist and who they should serve
By Bruce Packard Published
-
Bargain British stocks with long-term potential
Three British stocks with plenty of long-term potential, according to Ian Lance, co-manager of Temple Bar Investment Trust
By Ian Lance Published
-
Should you invest in Trainline?
Ticket seller Trainline offers a useful service – and good prospects for investors
By Dr Matthew Partridge Published
-
BT cuts annual revenue forecast – what's next for the telecoms giant?
BT has trimmed its sales forecast, but the overall outlook remains positive and big investors have bought in. Should you invest?
By Dr Matthew Partridge Published
-
Key takeaways from the MoneyWeek Summit 2024: Investing in a dangerous world
If you couldn’t get a ticket to MoneyWeek’s summit, here’s an overview of what you missed
By MoneyWeek Published
-
DCC: a top-notch company going cheap
DCC has a stellar long-term record and promising prospects. It has been unfairly marked down
By Jamie Ward Published