Chemicals sector comment – May 2012

Date

As we near the mid-point of the year, it is clear that M&A activity in the chemicals industry has reached a plateau.

A combination of the economic outlook and the increasingly difficult financing market is making the environment for deal making tighter than it was this time last year. At the same time, many would-be vendors are holding onto non-core or maturing assets for longer. There is also evidence of private equity firms resorting to buy-an-build programmes for some of their investments rather than selling at a time when their confidence in a successful exit is low. This is despite the fact that many corporates are sat with cash on their balance sheets and an appetite to buy. This has in turn driven up the valuations of assets that do come to market, making scarcity a driving force.

The impetus for an up-lift in M&A activity may come from a perfect storm of factors which are brewing on the horizon. Strong corporate balance sheets are increasingly become the subject of share buy-back calls from institutional shareholders. At the same time, many private equity firms are sitting on a wall of cash which they are now keen to invest and the increasing maturity of some of their investments will eventually drive an exit. Added to this melting pot is the increasing likelihood of Asian buyers venturing more actively into the marketplace, with Chinese groups ramping up their acquisition programmes across mid-market sized deals. A final significant point is the rapid development of the shale gas market in North America which is driving an abundance of low-cost feed stocks for US chemicals producers. This will drive increasing investment in the North American chemicals industry and stimulate the US export market which in turn will stimulate North American groups to actively pursue more M&A in the coming years.

Deals

JM Huber Corp has acquired the speciality hydrate flame retardant business of Almatis Inc. The acquisition includes the Hydral and SpaceRite hydrate brand names which will enhance the US group’s fire retardant additive business with in its Huber Engineered Materials division.

Bayer AG has acquired the Tuffak polycarbonate sheet business of Arkema SA. The unit is a manufacturer of polycarbonate sheet for the aerospace, heavy equipment, mass transportation, security glazing and transportation markets. It will be integrated into the German group’s existing Bayer MaterialScience operations in North America.

AURELIUS AG has acquired a UK manufacturing site from Bayer AG. The site is a manufacturer of crop protection chemicals within the German group’s BayerCropScience division which will complement AURELIUS’s existing investment in UK fine chemicals manufacturer CalaChem Ltd.

Kirsis Inc has acquired 50% in MetaDynea ZAO from Dynea Chemicals Oy. MetaDynea is a manufacturer of industrial adhesive products. Kiris has also acquired a 30% stake in Karbodin OOO, a Russian manufacturer of synthetic resins for insulation wool and other industrial uses. Both transactions provide Dynea with an exit from its Russian joint-ventures. The Finnish group is backed by Nordic private equity firm IK Investment Partners.

Royal Adhesives & Sealants has acquired Extreme Adhesives Inc, a US manufacturer of anaerobic, cyanoacrylate and methyl methacrylate adhesives. The acquisition will strengthen the US group’s presence in the assembly, maintenance and repair markets. Royal Adhesives & Sealants is backed by US private equity firm Arsenal Capital Partners.

DuBois Chemicals Inc has acquired Galaxy Associates Inc, a US manufacturer of cleaning chemicals, conversion coatings, metalworking fluids, process chemicals and sealing rinses. The acquisition will reinforce DuBois Chemicals’ presence in the industrial metal finishing sector whilst also adding products for the pulp and paper and transportation sectors. DuBois Chemicals is backed by US private equity firm Riverside.

PVS Chemicals Inc has acquired IACC Chemical Solutions Co Ltd from Ineos AG. IACC is a Thai manufacturer of chlorinated paraffin and industrial cleaning chemicals. The target is a supplier to the adhesives, metalworking lubricants, plastics, rubber and paint industries across the Far East.

PetroChoice Inc has acquired Lorenz Lubricant Co Inc, a US distributor of automatic lubrication systems and speciality lubricants. The acquisition will reinforce PetroChoice’s presence in the agriculture, construction, industrial, manufacturing, railway and transportation industries in the US Midwest.

BASF SE has acquired Novolyte Technologies Inc, a US developer and manufacturer of electrolyte formulations for lithium-ion batteries. The target’s portfolio of products also includes aryl phosphines, high-performance solvents and custom-made specialties. The deal will also see BASF continue a joint-venture with Foosung Co Ltd, a Korean manufacturer of lithium hexafluorophosphate, a high-purity speciality chemical used in the production of lithium-ion battery electrolytes. The transaction provides an exit for US private equity firm Arsenal Capital Partners.

Warter Spolka Jawna Spzoo has acquired an 85% stake in Osrodek Badawczo Rozwojowy Przemyslu Rafineryjnego SA, a Polish manufacturer and distributor of aviation fuels, corrosion inhibitors, plastics and reagents. The acquisition will provide Warter with both product diversification and international expansion opportunities.

US private equity firm Arsenal Capital Partners has acquired Plasticolors Inc, a US manufacturer of chemical dispersions and pigments for the coatings, industrial paint and thermoset composites industries. The acquisition will be merged with Arsenal’s earlier acquisition of the Colortrend colorants business of Evonik AG. The combined entity will be called Chromaflo Technologies Inc.

Israel Chemicals Ltd has acquired Tiami Vattenkemi AB, a Swedish developer and supplier of water treatment chemicals. The acquisition will be integrated into the Israeli group’s BKG-Water Solutions unit within its ICL Performance Products division where it will complement its existing water treatment business and strengthen its water treatment offerings in the Nordic region.

UK private equity firm Vision Capital has acquired Vitopel SA, an Argentine manufacturer of bi-oriented polypropylene films. The transaction provides an exit for US private equity firms DLJ Merchant Banking Partners and JP Morgan Partners.