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BASF to acquire Albemarle’s Chemetall surface treatment business

June 17, 2016
Chemical Value Chain

Albemarle and BASF today announced that they have signed a definitive agreement, under which BASF will acquire Albemarle’s Chemetall surface treatment business for about $3.2 billion in cash.

The Chemetall business became a part of Albemarle through Albemarle’s $6.2-billion acquisition of Rockwood Holdings that was completed in early 2015. CW reported last month that Albemarle was looking to divest Chemetall and had appointed Bank of America (BofA) as an advisor to explore options for the business. The deal marks a return to German ownership for Chemetall after a period of 12 years. Rockwood acquired the business from the former Mg Technologies, headquartered in Frankfurt, in 2004.

Chemetall, which is still headquartered in Frankfurt, is a worldwide supplier of applied surface treatments and services for metal, plastic, and glass substrates in a wide range of industries. Chemetall generated 2015 sales of $845 million and adjusted Ebitda of $205 million, and has about 2,500 employees worldwide. BASF’s purchase price represents a last-12-months Ebitda multiple of 15.3x as of 31 March 2016, Albemarle says. The transaction is subject to approval by the relevant authorities and is expected to close by the end of this year.

BASF says that Chemetall complements BASF’s current portfolio by adding a surface-treatment business to BASF’s coatings offerings. “Chemetall offers a strong strategic fit for our coatings business, and supports BASF’s aim to grow profitably in downstream, innovation-, and solution-focused businesses,” says BASF board member/coatings, Wayne Smith.

BASF’s coatings division produces and sells automotive coatings, automotive refinishes, industrial coatings, and decorative paints. The coatings division generated worldwide sales of about €3.2 billion ($3.6 billion) in 2015. AkzoNobel agreed in February to acquire BASF’s industrial coatings business for €475 million, and that transaction is expected to close by year-end.

Chemetall products protect metals from corrosion, facilitate forming and machining, allow parts to be optimally prepared for the painting process, and ensure proper coating adhesion, BASF says. These chemicals are used in end-markets such as automotive, aerospace, coil, and metal forming, the company says. Chemetall operates 21 production sites across more than 20 countries, as well as 10 R&D locations and 24 sales offices.

Analysts have expressed concern that buying Chemetall increases BASF’s market position mainly in low-growth, mature markets. About 50% of Chemetall’s sales are in Western Europe and 30% are in North America. “We worry this acquisition increases BASF’s exposure to industrial Europe, which will struggle to grow, especially if the automotive industry slows,” says Jeremy Redenius, senior analyst at Bernstein (London). “This concern links back to our thesis that surplus capacity in Chemetall’s customer industries—auto, aero, coil, metal forming—will pressure margins along the value chain and ‘steal’ volume growth from the core European market as much of the surplus capacity has been built in Asia.” Bernstein estimates that 27% of Chemetall’s sales are to the automotive industry.

Selling Chemetall “reflects Albemarle’s continued commitment to maximizing shareholder value by investing in the future growth of our high-priority businesses, reducing leverage, and returning capital to shareholders,” says Luke Kissam, president and CEO of Albemarle.

BofA Merrill Lynch is acting as exclusive financial advisor to Albemarle and Shearman & Sterling LLP is acting as its legal advisor in connection with this transaction, Albemarle says.

By Deepti Ramesh

Source: Chemical Week

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