Sector News

Sika’s Parex deal highlights building materials buyouts

January 9, 2019
Chemical Value Chain

Swiss chemicals company Sika AG has agreed to buy French rival Parex in a 2.5 billion Swiss franc ($2.6 billion) deal, the latest in a wave of consolidation in the construction materials sector.

The global market for construction chemicals, whose products are used to waterproof and strengthen cement in projects such as the Gotthard Base Tunnel under the Alps, is worth around $70 billion, analysts estimate.

Sika is buying Parex from private equity firm CVC Capital Partners. The deal is the biggest in Europe’s construction materials sector for the last three-and-a-half years.

Sika has been on the hunt for large acquisitions since it saw off a hostile takeover attempt from France’s Saint-Gobain last year.

Although Sika is one of the largest companies in the area, other heavyweights such as Germany’s Henkel and Saint-Gobain itself are looking to buy up some of the hundreds of smaller companies. The top ten players account for around 40 percent of the industry.

“This is still a very fragmented sector, with companies like Sika looking to act as consolidators. There could be further deals by Sika and others,” said Phil Roseberg, an analyst at Bernstein.

Smaller chemicals companies often have one or two niche products which are attractive to larger rivals because they can roll them out to global markets, he said.

Larger players are also interested in local companies’ distribution channels to cross-sell their own products.

MORE DEALS AHEAD
Chief Executive Paul Schuler said on Tuesday Sika was looking to buy four to six companies this year, although it would pause on making bigger buys as it digested Parex.

Sika is also interested in parts of BASF’s construction chemicals business, which has been put up for sale and would carry a price tag of around 3 billion euros ($3.4 billion).

“We have looked at BASF’s construction business, but a complete takeover is not possible,” Schuler said.

“We would have to see what is going on if they split. If they split we would have to look at it.”

CVC bought Parex in 2014 for 880 million euros, and Parex has since acquired 11 firms. CVC declined to comment on the money it made on this investment.

Schuler said he did not want to consolidate the sector, but grow with the “right acquisitions” and would not buy loss-making companies to increase its own market share.

Parex generated core profit of around 195 million Swiss francs from sales of 1.2 billion francs in 2018.

Analyst Bernd Pomrehn, an analyst at Bank Vontobel in Zurich, said Sika was a logical buyer for Parex, given their very similar margins and growth record.

“This is a good deal and the price is lower than rumored last year. This will not stop Sika’s growth ambitions and the company could still make some more big acquisitions,” he said.

The 2.5 billion Swiss franc price tag refers to Parex’s enterprise value.

The Parex deal would enable Sika to increase its sales above 8 billion francs this year, the company said.

Sika boosted 2018 sales to 7.09 billion Swiss francs, beating its target of 7 billion for the first time.

But the company’s stock was trading down 2.5 percent as analysts and investors were unimpressed by the company’s lower than expected core profit forecast for 2018.

By John Revill

Source: Reuters

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