Chemistry Matters

Apollo helps Lanxess woo Dutch rival AkzoNobel for choice bits

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Pick me, pick me! Source: Lanxess

Cologne-based chemical company Laxness, together with US financial investor Apollo, is bidding for choice parts of the specialty chemicals division of Dutch company AkzoNobel, sources told Handelsblatt. There is still no information on the size of the bid, but AkzoNobel values the unit at €8 billion to €12 billion ($9.5 billion to $14.25 billion).

However, Lanxess and Apollo aren’t the only suitors. Two other consortia have expressed interest and will submit bids by the end of the week, adding to the ongoing frenzy of M&A in the chemical sector.

The Dutch group wants to sell the division come April to focus on its paints and coatings businesses – in 2016, the company purchased BASF’s industrial coatings business for €475 million. Yet at this point, nothing is certain: Financial sources say AkzoNobel is even exploring the possibility of an IPO for the division, despite currently favoring an outright sale.

In such an early stage of courtship and with strong competition from two consortia consisting of private equity firms CVC and KKR, and Bain Capital and Advent International, it is unclear whether Lanxess and Apollo can woo AkzoNobel. Financial investors Blackstone and Carlyle are also said to be interested.

It even comes as a surprise that Lanxess is taking a look. The company’s CEO Matthias Zachert spent the last few years consolidating the company and only recently switched his focus to expansion. In April this year, Mr. Zachert bought up the US company Chemtura, one of the world’s leading suppliers of flame retardant and lubricant additives, for €2.4 billion. The recent addition is still being integrated, but the CEO has made it clear he wants to take part in the chemical industry’s restructuring.

Not to mention that Akzo’s specialty chemicals division is an attractive buy, earning a margin of 20 percent in 2016 with earnings before interest, tax, depreciation and amortization (ebitda) – of €953 million on total revenue of €4.8 billion. And with deals in the sector currently being priced between 10 and 12 times ebitda, it could realistically fetch €10 billion.

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Alone, Lanxess can’t afford it. The Cologne-based company had total revenue of €7.7 billion in 2016, plus it is only interested in choice bits, like surface chemistry, which makes ingredients for pesticides, cosmetics and water treatment, and polymer chemistry, which makes additives for plastics. Akzo’s surface chemistry branch alone generates sales of around €1 billion. Lanxess could only afford to spend €2 billion, according to analysts.

Pairing up with the cash-rich Apollo, which has already had some success investing in the chemical industry, is a strategic move for Lanxess. Apollo’s head of Europe Robert Seminara wants to invest just over $6 billion in Europe.

Whether the bid is appealing enough for Akzo remains to be seen, but the aggressive pursuit by rivals and investors says much about the structural transformation sweeping across the industry: Nobody wants to miss out.

Bert-Friedrich Fröndhoff leads a team of reporters which covers the chemicals, health care and services industries at Handelsblatt. Robert Landgraf is the deputy head of Handelsblatt’s finance section and is based in Frankfurt. To contact the authors: landgraf@handelsblatt.com, froendhoff@handelsblatt.com

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