Air Products

Evonik Industries AG agreed to acquire materials and additives units from Air Products & Chemicals Inc. (NYSE: APD) in a deal valued at $3.8 billion that increases its exposure to the U.S. market with high-margin chemicals used in insulation, household detergents and auto parts.

The performance materials business includes polyurethane additives, epoxy curing agents and high-margin amines generating about $250 million in earnings before interest, taxes, depreciation and amortization. Tax benefits amount to $500 million, the Essen, Germany-based company said in a statement Friday. The price implies a multiple of about 15.2 times earnings, not including savings.

Chief Executive Officer Klaus Engel is making the company’s biggest acquisition, relying on cost savings to make it work. It’s targeting $80 million in synergies from folding the acquired units into its own cost base. Amid a heated mergers and acquisitions market in chemicals, Engel this week sought to reassure investors that the company won’t overpay for assets, saying on an analyst call that the financial discipline Evonik showed in 2015 will extend in 2016.

Chemicals M&A has been robust in the middle market. Advent International will invest in chemicals producer Viakem SA de CV; CVR Partners LP completed its purchase of fertilizer maker Rentech Nitrogen Partners; and Maroon Group LLC has acquired chemicals distributor U.S. Chemicals. For more on M&A trends in the chemicals sector, see Chemical Makers Keep Drawing Buyers.

“The strategic fit is really good, in that respect it is a super deal,” said Markus Mayer, an analyst at Baader Bank AG, who rates Evonik shares hold. Mayer spoke before the release, but after Bloomberg today reported a deal was imminent. Evonik shares rose 1.4 percent to 28.35 euros as of 1:32 p.m. in Frankfurt trading.

The acquisition comes with an added financial burden. The operations are part of Air Products’s Material Technologies division, which CEO Seifi Ghasemi renamed Versum with a view to spinning it off to shareholders on a tax-free basis. The price tag agreed with Evonik compensates for the taxes resulting from a straight sale.

The earnings multiple Evonik is paying resembles the ratio paid by Solvay SA for aerospace composites maker Cytec Industries. Both companies have sought to exit commodity chemicals and move into higher-margin markets where demand is more resilient to economic cycles. Apollo Global Management LLC bought Belgian amines-maker Taminco Group for about 11 to 12 times earnings in 2011.

The units will add about $1 billion to Evonik’s turnover, half of which is generated in North America, with 26 percent generated in Asia and the remainder in Europe.

The U.S. industrial gas company’s electronics-materials business isn’t part of the deal. A straight sale of that business could be easier than a spinoff at a time when markets are volatile and economic growth is uneven. A sale would add to Air Products’s cash reserves. The CEO, who orchestrated the breakup of Rockwood Holdings, will be strengthening the balance sheet at a time when there are few obvious large industrial gas players left to acquire after recent consolidation. Air Liquide SA of France is in the process of buying its U.S. rival Airgas Inc. for $13 billion.


With additional reporting by Aaron Kirchfeld 

Subscribe Now

Complete access to real-time information and analysis of news and trends in the industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.