UPDATE: July 1, 2020: Ingredion completed its acquisition of PureCircle. Tony DeLio, who is Ingredion's chief innovation officer, will also serve as PureCircle's CEO. SukGu Kim, formerly Ingredion's finance director for the Asia-Pacific region, is now PureCircle chief financial officer.
- Ingredion agreed to purchase a 75% controlling stake in stevia pioneer PureCircle, the companies announced Thursday. Terms of the deal, which is slated to close in the second half of the year, were not disclosed.
- Both companies' boards have already signed off on the deal. PureCircle, which is traded on the London Stock Exchange, will need to have its shareholders' approval the purchase.
- “PureCircle is a widely recognized innovator with a proven track record for producing great-tasting, plant-based stevia," Ingredion President and CEO Jim Zallie said in a release announcing the agreement. "Ingredion’s successful and global go-to-market model combined with our formulation expertise will be highly complementary with PureCircle’s capabilities.”
If it is approved by shareholders, this deal has the potential to solve issues each of these individual companies face.
Even though its knowledge and leadership in the stevia market is vast, PureCircle is in deep financial trouble. And even though Ingredion offers more than 1,000 ingredients to food and beverage companies worldwide, it doesn't have stevia brands of its own. This deal would preserve PureCircle's industry knowledge and leadership, as well as give Ingredion a large presence in one of the hottest sugar replacement ingredients. Ingredion has identified sugar reduction and specialty sweeteners as one of its core growth areas.
The last several years have been very good for PureCircle when it comes to business and innovation. PureCircle received a patent to use the more sugar-like glycoside Rebaudioside M in beverages in 2015. In 2017, it developed the StarLeaf variety, which has 20% more Reb M and desirable Reb D than regular stevia plants.
A year later, PureCircle developed a method to convert the more abundant Reb A, which has a somewhat bitter aftertaste, into Reb D and Reb M. In December 2019, PureCircle launched its new Sigma Syrup, a concentrated Reb M blend designed to overcome common solubility challenges.
But there has been less positive news from PureCircle in the recent past, too. In much-delayed year-end 2019 financials filed last week, the company posted a $79.7 million loss. The loss resulted from deep and long-lasting accounting issues the company discovered in September. It prompted a private audit from KPMG, as well as the ouster of the company's founding CEO, its CFO and many members of the board.
Although PureCircle's financial issues seem to have been worked out and the company's books are unlikely to reflect this kind of big drop again, the stevia maker had to raise a lot of cash in order to keep going. PureCircle received a waiver of all previous defaults, bringing in an additional $8.6 million in liquidity through an unsecured subordinate loan from shareholders.
Last week's financial report mentioned several avenues the company was investigating in order to keep going. They included finding investors, refinancing existing debt or selling its refineries to a third party and leasing them back.
This option works well for PureCircle, given Ingredion's global leadership in many areas of the ingredients market. But it also benefits Ingredion, which has a reputation for acquiring smaller companies that can bring new expertise to the fold. In order to build its texturizing business, for example, Ingredion acquired rice ingredient company Sun Flour and TIC Gums. The company has not made any large acquisitions in the last few years, but its presence in stevia currently is mostly through distribution agreements with producer SweeGen.
According to Ingredion's 2019 annual report, sugar reduction made up 36% of the company's net sales last year, mostly through polyols including erythritol, and rare sugars including allulose. The acquisition of PureCircle will help that sales proposition grow exponentially, especially since new innovations in stevia have made formulators more strongly consider using the sweetener.
Once known for having a bitter aftertaste, stevia has come far. In 2018, the number of product launches with stevia increased 31% from the year before, according to Mintel statistics assembled by PureCircle. The growth rate just a year earlier was 11%. Much of this work in improving stevia can be credited to PureCircle. If the deal goes through, Ingredion is in prime position to reap the benefits — and quickly become one of the world's go-to stevia suppliers.