Arkema completes the acquisition of ArrMaz: A strategic deal in a series of bolt-on acquisition for revenue growth, higher profit margins, and future revenue shifts

Posted by MarketsandMarkets on Jul 9, 2019 10:58:14 AM
MarketsandMarkets

French specialty chemicals company, Arkema has completed the acquisition of ArrMaz, a global leader in specialty surfactants for crop nutrition, mining chemicals, and infrastructure.

MarketsandMarkets™ View Point:

Purushottam Uniyal, Manager - Business Research in the Chemical Domain at MarketsandMarket™ analyzes the acquisition completed by Arkema, and provides rationale/factors behind this M&A deal.

Deal in Brief

Deal Type

Merger & Acquisition

Deal Date

July 1, 2019

Deal Status

Completed

Companies involved

  • Arkema (France)
  • ArrMaz (US)

Deal value

USD 570 million

 

Deal Rationale

Attractiveness of ArrMaz for Arkema

  • Revenue of USD 290 million with 18% EBITDA margin
  • A profitable, resilient, and low capital-intensive business model
  • The deal is based on an enterprise value of US$570 million, which corresponds to an EV/EBITDA multiple of 10.8x (~7x EBITDA 2023 including synergies)
  • A leader in specialty surfactants for crop nutrition, mining chemicals, and infrastructure (asphalt additives and other road construction solutions)
  • Significant commercial presence in North America, South America, Asia and in the fast-growing economies of the Middle East & Africa
  •  Products sales in more than 70 countries, with nine production facilities in key locations worldwide
  • The entry of Arkema into new segments such as additives for nutrients, lithium extraction, and oil & gas process aids

The acquisition could be seen as a part of Arkema’s strategic growth plan - 2020 and 2023. They plan to achieve a revenue of Euro 10 billion; an EBITDA margin close to 17% by 2020; and over 80% of sales in specialties by 2023, fetching them higher profitability REBIT margin (margin after depreciation and amortizations) between 11.5 and 12.5%, and a free cash conversion EBITDA of 35%. As per the annual report for 2018, 70% of its revenue comes from specialty chemicals segments.

Selective acquisition is a key strategy adopted by the Arkema Group

 Arkema has adopted a selective and ambitious bolt-on acquisition programs since 2007. These acquisitions helped the company reposition itself in the higher margin businesses, rebalance their global presence, and rank as a world leader in a few of their business products lines.

In a chronological order, they have done bolt-on acquisitions such as Coatex (Euro 150 million, 2007), Repsol PPMA (Euro 30 million, 2008), Odor Tech (USD 8 million, 2008), Dow Chemical Assets (USD 450 million, 2009), Oxford Performance Materials (USD 2 million, 2009), Piezotech (Start-up, 2010), Sartomer + Cray Valley (Euro 850 million, 2011), Seppic Assets (Euro 47 million, 2012), Ace Polymers (Euro 3.5 million, 2013), Casda Polymer and Hipro Polymers (USD 230 million, 2013), Sunke (USD 240 million, 2014), Bostik (USD 1.5 billion, 2015), Den Braven (Euro 350 million, 2016), XL Brands (USD 205 million, 2017), Products De Specialities CMP (USD 15 million, 2017), Nitta-Zilatin Inc’s industrial adhesive segment (USD 30 million, 2018), and ArrMaz (USD 570 million, 2019).

*Currency for deal value size has been kept same as reported by Arkema through their press releases/website.

Specialty and high value-added segments have been the target of acquisitions

Arkema’s acquisition policy focuses on companies or sectors producing high value-added materials, specialty chemicals, and advanced material, designed to provide client-specific solutions. Also, the acquisition of these players enhances the technical know-how of the group and creates value for stakeholders through synergy.

Targeted acquisitions and other expansion strategies helped Arkema in building a balanced foothold across geographies

With the focus on expansion in higher growth regions, mainly Asia, Arkema's share of revenue increased from 13% in 2006 to 31% in 2018 in Asia. Arkema earns more than 30% revenue from each region – North America, Europe, and Asia, making it a quite balanced and resilient business model to get adversely affected by any economic hiccups in a particular geography.

Along with selective acquisitions, Arkema also constantly focuses on unrelenting innovation processes to develop new product lines in the field of specialty chemicals. Their key focus areas are bio-based products, new energies materials, water management (filtration), electronics solutions, lightweight materials (bio-based thermoplastics), home efficiency, and insulation. Their R&D is focused on new applications such as photovoltaics, lithium-ion batteries, and water filtration.

Revenue shifts of clients and (their) client’s client are preparing the base for such a series of M&A deals done by Arkema

  • Some start-ups and small companies are introducing products and technologies with high penetration potential to become a larger market player, and/or increase the overall value of other products while utilized together as a common solution.
  • Customers are looking for the advanced high-performance materials and switching toward the vendors who are offering these solutions.
  • OEMs are continuously demanding lightweight materials in the automotive and aerospace sectors for energy efficiency
  • New generation composites materials are offering high performance while replacing the metals and saving cost
  • Fast growing 3D printing technology is demanding more advanced materials to comply with technology
  • Bio-materials are becoming the preferred choice of customers

At MarketsandMarkets™, we believe new technologies and performance materials that make 20-30% of the total revenue today will contribute 70% of the total revenue in the next 10 years. This clearly means phasing out of the conventional sources of revenue.  

Conclusion

Arkema made a focused bolt-on acquisition while keeping an eye on high growth end-use markets and margin. On the face, the acquisition harmonizes the geographical presence along with synergetic commercial and technological capabilities. After the deal, Arkema would be better positioned to accelerate its growth in their established markets, as well as they have direct entry to some fast-growing new markets such as additives for nutrients, lithium extraction, and oil & gas process aid.

In future, the industry could expect some more similar acquisition deals from Arkema, based on their strategic growth plans.  The competitors in specialty business such as Johnson Matthey (UK), Huntsman Corporation (US), Evonik Industries AG (Germany), BASF (Germany), Clariant AG (Switzerland), Ashland Inc. (US), W. R. Grace (US), and others must be following such M&A closely, while looking for similar attractive M&A opportunities to balance their future revenue mix.

LinkedIn-posts-MnM_V2

 

For more information, please write to us at info@marketsandmarkets.com

Topics: Chemicals, Specialty Chemicals Market, Arkema, ArrMaz

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