Arkema SA agreed to buy a U.S.-based supplier of mining-additives from Golden Gate Capital for $570 million as part of Chief Executive Officer Thierry Le Henaff’s drive to expand in higher-margin specialty chemicals.
Purchasing ArrMaz Custom Chemicals Inc. will add a portfolio of defoamers and other so-called surfactants also used in road construction and agrochemicals generating annual sales of $290 million, the Colombes, France-based company said in a statement on Thursday, confirming an earlier report by Bloomberg. The price equates to 10.8 times ArrMaz’s earnings before interest, taxes, depreciation and amortization.
For all the expectations that Arkema would follow up with more adhesive M&A following its $2.2 billion purchase of glue-maker Bostik in 2014, Le Henaff opted for a target that taps phosphate mining from a rich mineral seam extending from the Atlas Mountains in North Africa to Saudi Arabia. Its chemicals are used to help process the breakdown of the chalky white rock, as well as in fertilizers and highway asphalt. Arkema already sells some of its surfactant products to mining companies.
“The acquisition is a positive as it will help drive margin growth and fits in with the bolt-on M&A strategy. With Bostik, maybe there’s less need to focus on adhesives” — Mustaq Rahaman, credit analyst
ArrMaz generates margins of 18%, and integrating the business should lead to $15 million in savings by 2023, Arkema said, making the company’s portfolio more resilient to the economic swings that affect demand for commodity chemicals.
The shares rose as much as 1.5% in Paris trading to 79.48 euros, giving a market value of 6.1 billion euros ($6.8 billion).
While needing M&A to meet a 2020 target for 10 billion euros in sales, Le Henaff has balked at the valuations demanded by sellers. On a May 7 investor call, he highlighted Parker-Hannifin Corp.’s $3.67 billion purchase of adhesives-maker Lord Corp. as evidence that deal multiples remain high, adding Arkema will be selective when choosing targets.
Even assuming debt finance, the price Arkema is paying looks reasonable and the company “has some latitude” given leverage was below one times earnings at the end of 2018, Rahaman said.
Golden Gate acquired the company in 2013, according to a statement at the time. Innospec Inc., a competitor in mining chemicals, currently trades at about 11 times its trailing 12 month Ebitda. Founded in 1967, ArrMaz has made a string of acquisitions under Golden Gate, including the 2017 purchase of asphalt additive maker MaxxChem LLC in East Point, Georgia.
Golden Gate worked with Lazard Ltd. and Moelis & Co. on the sale.
(By Andrew Noël)