Sector News

China buyers seek more chemical deals in Europe – banker

October 26, 2017
Energy & Chemical Value Chain

China-based chemical companies, often through special private equity firms or advisors, are becoming more active in acquiring European assets, an investment banker said on Tuesday.

“There are quite a lot of these chemical companies that are listed on the Chinese stock exchange with a strong drive to expand or diversify, and buy European and US assets to achieve a global market leading position, and thereby sustain the further development of the stock price,” said Bernd Schneider, managing director and global head of chemicals at Germany-based investment bank Alantra.

“If a deal makes sense from a strategic perspective, the Chinese government will approve an outbound deal, despite the official constraints on capital outflows,” he added.

Thus, the acquisition targets will typically have a significant technology and formulation component that can be leveraged in the China market, he noted.

“Many of the buyers are new chemical companies, including smaller conglomerates, that even many industry practitioners have never heard of – they may have $100m-$300m in annual revenues and are listed on an exchange. They often have significant firepower, sometimes with the ability to buy companies with revenues larger than their own,” said Schneider.

“The typical logic of whether company A can buy company B based on size and operational synergies doesn’t work with many Chinese buyers – you have to look behind the Chinese curtain,” he added.

These companies can secure the funds to close a deal either by raising more equity capital, deploying capital from government-owned investment vehicles, or by partnering with private equity firms that bring deal experience to the table and are specialised in acquiring Western assets to leverage their potential in China markets.

One example of such a private equity firm is AGIC (Asia-Germany Industrial Promotion) Capital, which describes itself as “the leading Asian-European private equity firm focused on industrial technology investments in Europe”.

AGIC is led by Henry Cai, formerly executive chairman of Investment Banking Asia Pacific at Deutsche Bank, before starting up AGIC in 2015. During his investment banking career of over 20 years, including at UBS and BNP Paribas, he helped bring around 200 Chinese state-owned and private companies to the public marketplace, according to AGIC.

Among the major investors in AGIC is China’s sovereign wealth fund China Investment Corp. AGIC initially raised $1bn for its first fund and is now seeking another $2bn-$3bn for its second, to be completed later in 2017.

AGIC seeks mid-sized technology oriented acquisitions in Europe, including in advanced materials and technologies. Among the subsectors in this category are high performance plastics, polymers and alloys, along with biodegradable materials, nanotechnology and carbon fibre components.

While it has yet to buy a chemical or plastics producer, in January 2016 AGIC partnered with ChemChina and GuoXin to buy Germany-based plastics and rubber processing machinery company KraussMaffei Group for €925m as its first investment.

Another such specialised private equity firm is Mandarin Capital Partners, which focuses on buying mid-size European businesses with “significant market potential in China”.

Mandarin acquired and sold a majority stake in Italy-based performance additives and specialty chemicals producer ItalMatch (acquired in 2010, sold in 2014) and in 2014 bought a majority stake in Italy’s Industrie Chimiche Forestali, a producer of adhesives and fabrics for a wide range of consumer applications.

Often these specialised private equity firms act as intermediaries for Chinese buyers, said the banker.

“Often you don’t see the chairman of a Chinese company engaging directly in the acquisition process. Instead it is a private equity vehicle or in some cases an advisor with knowledge on how to do these deals,” said Schneider.

“The private equity fund takes a majority stake and then sells it back to the trade buyer, either immediately or in a few years. But it usually has the ultimate buyer in mind on day one,” he added.

For a number of mid-size Chinese chemical companies, acquiring Western businesses, in particular with technological and formulation expertise, is a natural next step in their development, the banker noted.

By Joseph Chang

Source: ICIS News


comments closed

Related News

November 26, 2023

INEOS Styrolution and Sinopec inaugurate new ABS facility in Ningbo, China

Energy & Chemical Value Chain

INEOS Styrolution, the global leader in styrenics, has today announced the official opening of a new world-scale ABS[1] facility located in Ningbo, China, together with its joint venture partner SINOPEC. The facility has an annual nameplate capacity of 600,000 tonnes.

November 26, 2023

Rohm, SABIC combine on New Film, Sheet Unit

Energy & Chemical Value Chain

The merger of Röhm’s Acrylic Products business unit and SABIC’s Functional Forms business has resulted in the formation of Polyvantis. This new company will offer extruded products in the forms film, sheet, pipe and rod for markets that include building and construction, transportation and aviation, electrical and electronics, automotive and home and garden.

November 26, 2023

Report: Adnoc considering €10B acquisition of BASF affiliate Wintershall DEA

Energy & Chemical Value Chain

Abu Dhabi National Oil Co. (Adnoc) is considering plans to acquire upstream oil and gas company Wintershall DEA, an affiliate of BASF SE, according to a Bloomberg report citing people with knowledge of the matter. A deal to acquire Wintershall DEA could be worth more than €10 billion, the report said. BASF and Adnoc declined to comment on the report.

How can we help you?

We're easy to reach