Evonik Wraps up PeroxyChem Deal
German specialty chemicals group Evonik has successfully completed its now $640 million acquisition of US peroxides manufacturer PeroxyChem after a US court in Washington DC dismissed the Federal Trade Commission’s (FTC) lawsuit to block the deal.
Starting immediately, the acquired business will be integrated the Essen-based group’s Resource Efficiency segment, adding eight new plant to its worldwide total, the bulk of them in the US.
Evonik announced its plans to buy the business from One Equity Partners in 2018, but the FTC in 2019 objected on grounds that it would leave only one other H2O2 supplier in the Pacific Northwest. Although there would be four remaining suppliers in the southern and central US, Evonik would control nearly half of the country’s total production capacity, it said.
The German group fought the decision, stressing among other points the strong specialties focus of the US player headquartered at Philadelphia, Pennsylvania. In addition to H2O2 and peracetic acid (PAA), PeroxyChem is also well positioned in high-margin specialty applications.
To comply with antitrust requirements, Evonik will sell PeroxyChem’s site in Prince George, British Columbia, Canada. This focuses mainly on standard products, and the proportion of earnings from operations is negligible for both PeroxyChem and Evonik, the German group asserted.
Commenting on the closing, Evonik CEO Christian Kullmann said the court “confirmed our view of the H2O2 market and, above all, the strong specialty focus of PeroxyChem's portfolio.” The the acquisition unlocks additional growth opportunities, especially in the market for environmentally friendly disinfectants, he remarked.
“We strengthened Evonik's financial position by divesting our methacrylates business last year,” chief financial officer Ute Wolf, added “As planned, now we are investing a part of the proceeds for the selective expansion into high-margin, less cyclical businesses with a high proportion of specialties and a strong free cash flow.”
Calling the two global businesses “a good and complementary fit,” Evonik said it expects to leverage synergies of $20 million as estimated earlier – in particular in operations and logistics, expansion of the product portfolio and launch of new technologies. The synergies are expected to be fully realized by 2022.
The German group, traditionally a leading player in peroxides, said the market for H2O2 and PAA is currently benefiting from the trend to sustainable products and solutions, with demand driven principally by the need for sustainable disinfectants. PeroxyChem's H2O2 and PAA business focuses on end-users in the environmental, food safety, and electronics semiconductor industries, where cyclicality is low, it explained.
Last year, the American company started up a PAA-fueled wastewater treatment plant in Memphis, Tennessee, and subsequently signed a long-term supply agreement with the city government. With capacities already run flat out, Evonik said the facility will already deliver “resilient earnings” in 2020,” Thanks to these positive circumstances, the acquisition price rose to $640 million from the originally announced $625 million.
Evonik said the purchase price (enterprise value) including synergies is about 7.6 times the annual adjusted EBITDA, or 9.9 times before synergies (based on 2019 financials). The acquisition will have a positive impact on its adjusted earnings per share and free cash flow starting this year, it said.
In 2019, PeroxyChem reported sales of around $300 million and an adjusted EBITDA of more than $64 million.