Evonik Industries AG (Essen, Germany; www.evonik.com) has signed an agreement with One Equity Partners to acquire PeroxyChem LLC (Philadelphia, Pa.; www.peroxychem.com) for $625 million. PeroxyChem is a manufacturer of hydrogen peroxide (H2O2) and peracetic acid (PAA) and is well positioned in high-margin specialty applications.
“PeroxyChem will significantly strengthen our growth segment Resource Efficiency,” says Christian Kullmann, chairman of the Executive Board of Evonik. “We are expanding our portfolio of environmentally friendly and high-growth specialty applications. Furthermore, we are getting an attractive business characterized by above-average growth, moderate capital intensity and low cyclicality.”
“We are excited about the opportunity to join forces with Evonik and make our successful business even stronger. The complementary fit of the two businesses will unlock new and attractive growth opportunities for our customers and employees,“ says Bruce Lerner, president and CEO of PeroxyChem.
The H2O2 and PAA markets are characterized by versatile applications and above-average growth rates – especially for specialty applications with average annual market growth of around 6%. PeroxyChem leverages its H2O2 and PAA to focus on sophisticated, less cyclical markets in the environmental, food safety and electronics semiconductor industries. The U.S.-based company already generates approximately three-quarters of its earnings with specialty applications in these segments.
“PeroxyChem is highly profitable. With an adjusted EBITDA margin of about 20%, profitability is constantly above Evonik’s current group margin”, says Ute Wolf, CFO of Evonik. “As a strong-growing and stable financing business, it also generates an attractive free cash flow.”
PeroxyChem expects revenues of approximately $300 million and an adjusted EBITDA of around $60 million for the 2018 fiscal year. This corresponds to an attractive EBITDA margin of around 20%. Evonik expects synergies across the combined global business of $20 million due to the complementary fit in operations, logistics, expansion of the product portfolio and launch of new technologies. Synergies should be fully realized by 2022.
The purchase price (enterprise value) including synergies is about 7.8 times the annual adjusted EBITDA, or 10.4 times before synergies. The transaction is scheduled to be completed by mid-2019, subject to approval by the appropriate authorities.
The acquisition is likely to have a positive impact on Evonik’s adjusted earnings per share and free cash flow as early as the first full year after closing. Financing has been secured via cash and committed credit facilities.
H2O2 and PAA acid are both oxidants with multiple application fields, whether as a bleaching agent in the pulp industry, as a disinfectant for food processing or for wastewater treatment. Water is the only byproduct following the reaction of H2O2 which makes its use highly environmentally friendly. Thanks to its product properties, hydrogen peroxide is increasingly used in attractive high-tech applications such as semiconductor manufacturing medical applications and spacecraft technology. Logistics, long-term customer relationships and diverse end-use applications make the business resilient.
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