EQT said that with this acquisition, it plans to expand the unit both organically by strengthening its digital infrastructure, sustainability capabilities and supply chain setup and through strategic acquisitions. The private equity firm noted that the current market for natural colors is highly fragmented but that Chr. Hansen’s Natural Colors business is the market leader. The business unit posted $250 million in sales last year and has grown 9% annually over the past five years.

Despite the growth of the unit and continued consumer demand for natural colors, the Danish biotech and natural food solutions manufacturer chose to shed this arm of its business. Colors made from all-natural fruit and vegetable concentrates are a popular concept for consumers looking for clean label alternatives and healthier options to purchase. Nevertheless, the introduction of these plant-based hues does not always go smoothly.

General Mills serves as the case study for the lackluster reception that natural colorant alternatives can receive. After reformulating its Trix cereal to a recipe using only plant-based colors in 2017, the company quickly reverted back to its original vibrant recipe when consumers reacted negatively to the change.

Despite these struggles, Big Food continues to invest in developing alternatives that use natural shades as these alternatives remain a lucrative segment. The category is anticipated to grow to $2.5 billion by 2025, according to Grand View Research, which predicted the Asia Pacific region to account for over 29% of the revenue market share. Similarly, EQT expects to see growth in that region. In the announcement, the private equity firm noted it will focus primarily on building out demand for the Natural Colors business in Asia as well as the United States.

This divestment is not the first in the last year from an ingredients company. Last year, DuPont divested its own natural colors business to the private equity firm DDW. While ingredient companies have struggled with their natural color divisions, EQT noted that fragmentation has remained a barrier for the industry. The firm said it will focus on industry consolidation as an approach to mitigate the difficulties associated with growing this category.

In lieu of pursuing vegetable-based dyes to make its name, Chr. Hansen said in a statement that the sale of its Natural Colors division allows the company to pursue its strategic goal of “fulfilling the ambition of becoming a pure-play, microbial and fermentation company.” This explanation is in line with the company’s 2025 strategic plan and fits with changing consumer demands globally. Fermentation has grown steadily as a component of natural foods production in the last several years. Recently, a report from the Good Food Institute highlighted fermentation as the next pillar of alternative protein.