Evonik Industries Group spent US $ 640 million to successfully complete the acquisition of American PeroxyChem. The Washington, DC, competent court dismissed the US Federal Trade Commission (FTC) 's lawsuit against acquisitions. "For Evonik, this result is gratifying," said Ku Leman, chairman of Evonik. "The court agreed with our view of the hydrogen peroxide market in the judgment, especially the core advantage of the PeroxyChem product portfolio in the special applications market. This acquisition has brought us more growth opportunities, especially in environmentally friendly disinfectants market."
Evonik signed an agreement with One Equity Partners (JP Morgan Chase's private commercial banking division) at the end of 2018 to acquire PeroxyChem. PeroxyChem is a manufacturer of hydrogen peroxide (H2O2) and peroxyacetic acid (PAA), occupying a good market position in high-margin special applications. In addition to the United States, antitrust authorities in other countries have approved the transaction. But in August 2019, the US Federal Trade Commission filed a lawsuit to block the acquisition.
PeroxyChem CEO Bruce Lerner is satisfied with the decision: "Despite the uncertainty in the market, our performance in 2019 is still strong. Under the extremely challenging economic situation, the company's sales and earnings have further increased. The company ’s business integration will encourage employees to develop better solutions for their customers. "
In 2019, PeroxyChem ’s sales reached approximately US $ 300 million, and adjusted EBITDA exceeded US $ 64 million (2018 sales were approximately US $ 300 million and adjusted EBITDA was approximately US $ 60 million). Evonik ’s peroxide business also developed well in 2019. In recent years, Evonik has continued to focus on special chemicals strategically, which has led to a positive development of the peroxide business-business revenue has continued to increase, especially its EBITDA profit margin in 2019 is fully in line with the company ’s 18-20% Overall target interval.
In order to comply with antitrust requirements, PeroxyChem's plant in Prince George, British Columbia, Canada will be sold in due course. The plant mainly produces standard hydrogen peroxide products. For PeroxyChem and Evonik, the plant's revenue accounted for the company's overall revenue is negligible.
"Last year, by divesting the methacrylate business, Evonik's financial position was further improved," pointed out Ute Wolf, chief financial officer of Evonik. "According to the plan, we will use part of the proceeds to selectively expand some businesses with high profits, low periodicity, high proportion of special products, and strong free cash flow."
Thanks to the sustainable development trend, the hydrogen peroxide and peroxyacetic acid markets are currently developing well. Hydrogen peroxide is an environmentally friendly and resource-efficient chemical. Because it only decomposes into hydrogen and water during processing, hydrogen peroxide has become one of the purest and most versatile chemicals. Sustainable disinfectants are the main application areas driving demand growth. PeroxyChem's hydrogen peroxide and peroxyacetic acid businesses are focused on end users in the environmental protection, food safety and electronic semiconductor industries with relatively low periodicity.
Against this background, PeroxyChem built a wastewater treatment plant using peroxyacetic acid in Memphis, Tennessee, USA in 2019. Based on a long-term supply agreement with Memphis, the plant will begin to generate stable revenue in 2020. The capital expenditure of the plant has been fully borne by PeroxyChem. According to the contract, in view of the successful completion and timely implementation of the project, the purchase price increased from the initial announced value of US $ 625 million to US $ 640 million.
Given the good complementarity of the two companies ’global businesses, Evonik expects that the combined global business will generate $ 20 million in synergies—same numbers as previously announced, especially in operations and logistics, product portfolio expansion, and new technology research . The above synergies will be fully realized by the end of 2022.
Based on the 2019 financial results, the purchase price (corporate value) including synergy is about 7.6 times the annual adjusted EBITDA, and 9.9 times without considering the synergy. The acquisition will have a positive impact on Evonik ’s adjusted earnings per share and free cash flow for fiscal year 2020. The transaction completion date is February 3, 2020. From this date, the PeroxyChem business will be fully integrated into Evonik.
The acquisition business will be integrated into Evonik's resource efficiency business segment. Integration will begin immediately.
PeroxyChem has a history of more than 100 years and is headquartered in Philadelphia, Pennsylvania, USA. It has approximately 600 employees and 8 production bases around the world. The main base is in North America, and there are also production plants in Germany, Spain and Thailand. Evonik is one of the largest hydrogen peroxide producers in the world. Its active oxide business line has decades of experience in the production of hydrogen peroxide and related products, and has 13 production bases worldwide.